The party’s over – for now

Data Insights

Over the past four years the healthcare bull market’s amazing climb looked unstoppable, but it came to an abrupt end last month. Data for the end of the third quarter paint a sorry picture, with problems ranging from doubts about pharma’s ability to maintain pricing to macroeconomic fears that have hit the broader market.

For some healthcare stocks there has been no hiding from the gloom (see tables below). Big biotech has been hit especially hard, driving down the Nasdaq Biotechnology and Dow Jones Pharma and Biotech indices, and even one of the best-performing stocks year to date, Valeant, faces massive problems.

Perhaps the Nasdaq Biotechnology index, which at the end of September was flat on the year, provides the best illustration of the carnage. In mid-July it stood up 30%, but by the end of the third quarter all of 2015’s gains had been wiped out.

It is true that Turing Pharmaceuticals’ much-publicised price hike on the toxoplasmosis drug Daraprim is what ultimately led to drug price increases hitting headlines and becoming a hot topic of the US presidential elections, but in reality the issue had been brewing for a long time.

Stock index % change year to date
NASDAQ Biotechnology (US) 0%
S&P Pharmaceuticals (US)  -5%
Dow Jones Pharma and Biotech (US)   -5%
S&P 500 -7%
DJIA -9%
Dow Jones STOXX Healthcare (EU)   9%
Thomson Reuters Europe Healthcare (EU) -2%
Euro STOXX 50 -1%
FTSE-100 -8%
TOPIX Pharmaceutical Index (Japan)  13%

Fears about China’s economy have added to the market uncertainty. As it stands only the Japan-focused Topix Pharmaceutical and the EU-based Dow Jones Stoxx Healthcare indices seem relatively immune to the US turmoil.

Among the big pharmas AbbVie and Merck & Co have had a particularly tough time of it, though Johnson & Johnson and AstraZeneca also suffered, and all four were sitting on double-digit nine-month stock declines. The UK group is coming off a year in which Pfizer had tried to buy it, since when its setbacks have included Amgen ditching its promising psoriasis agent brodalumab.

Big pharma companies: top risers and fallers in first 9 months
Share price (local currency) Market cap ($bn) 
Top 3 risers YE 2014 Q3'15 Change Q3'15 9M chg
Lilly  $68.99 83.69 21% 92.8 16.0
Sanofi  €75.66 84.89 12% 122.5 (4.7)
Pfizer  $31.15 31.41 1% 193.7 (2.5)
Top 3 worst performers
AbbVie  $65.44 54.41 (17%) 90.1 (14.2)
Merck & Co  $56.79 49.39 (13%) 139.1 (22.8)
Johnson & Johnson  $104.57 93.35 (11%) 258.5 (34.2)

But it is remarkable to see Pfizer among the few big groups that have bucked the trend; perhaps the sector’s love-to-hate company is seen as something of a safe haven. Lilly and Sanofi – hardly low-risk from an R&D perspective – have scored successes, with Jardiance and Praluent respectively, though much of Lilly’s value depends on solanezumab, so the group has it all to do.

Diabetes is also behind the best-performing non-big pharma large cap stock, Novo Nordisk, which is basking in the success of its long-acting insulins Tresiba and Ryzodeg, approved in the US at last. And Sanofi’s Praluent partner Regeneron is sitting pretty as the best-performing big biotech of the year so far.

No such luck for Praluent’s anti-PCSK9 competitor Repatha, whose originator, Amgen, is 13% off on the year. This is in keeping with the performance of groups like Biogen and Celgene, which have dragged down the Nasdaq biotech index.

Other large cap (>$25bn): top risers and fallers in first 9 months
Share price (local currency) Market cap ($bn) 
Top 3 risers YE 2014 Q3'15 Change Q3'15 9M chg
Novo Nordisk DKr260.3 DKr358.2 38% 108.9 15.3
Valeant  $143.11 $178.38 25% 61.1 13.1
Regeneron $410.25 $465.14 13% 47.3 6.4
Top 3 worst performers
Alexion  $185.03 $156.39 (15%) 35.4 (1.3)
Biogen  $339.45 $291.81 (14%) 68.6 (11.5)
Amgen  $159.29 $138.32 (13%) 104.9 (16.3)

Not only is Biogen 14% down for the year, it is off an amazing 39% since its peak in March; with the benefit of hindsight this shows what a bubble had been inflated under its early-stage Alzheimer’s project BIIB037 and multiple sclerosis agent BIIB033.

Alexion, meanwhile, got caught up in the drug pricing debate – it sells the world’s most expensive drug, Soliris – as well as shelling out $8.4bn to acquire Synageva BioPharma in a takeover than now looks overpriced.

Still, when it comes to moves to limit hiking drug prices, the company most at risk looks to be Valeant – notwithstanding its insistence to the contrary (Biotech’s 2015 gains disappear, September 29, 2015). Valeant might be up 25% year to date, but this belies a 44% crash since the end of July.

If there is any solace for the biotech bulls it is that actual political intervention to curb US price hikes is a pipe dream. And the Nasdaq biotech index is up 4% so far in October, though it has some way to go to recover the losses of the past three months.

To contact the writers of this story email Jacob Plieth or Edwin Elmhirst in London at news@epvantage.com or follow @JacobPlieth or @EPVantage on Twitter

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