Covid-19 infects global drug stocks

As the coronoavirus pandemic swept the globe in the early months of 2020 stock markets tumbled, leaving no industry untouched. Gains by various drug developers working towards solutions sheltered biopharma to a certain extent, but valuations across the board still plummeted.

In a new project Vantage has started tracking the stock market performance of almost 600 global drug makers covered by EvaluatePharma. The first cut of this dataset shows that big, mid and small cap companies all saw substantial market cap erosion over the first quarter of 2020, adding up to a huge $452bn loss in valuation across this universe.

Still, the extent of the surge that global biopharma stocks enjoyed at the end of last year should not be forgotten; in that three-month period this universe gained more in valuation than was lost in the first quarter. This was driven by a run of M&A deals, clinical wins and important new drug approvals, several of which came early.

As such, the global biopharma sector started this pandemic on a high, with many companies very well funded. Had the selloff commenced three months earlier, these public drug developers and their investors would probably be confronting this period in a different frame of mind.

An illustration of the severity of the first quarter declines is that, of the 579 companies in this universe, 448 registered share price drops over the three months, with 200 losing more than a quarter of their market value.

A more granular cut of the data is below: here, the biopharma sector is split into four cohorts, based on year-end 2019 market caps. These incorporate the 11 big pharma companies; other big drug stocks worth at least $25bn; mid-caps with a capitalisation $5-25bn; and small caps sitting between $250m and $5bn.

Micro-caps, those worth less than $250m, are excluded from the analysis. This universe also covers only dedicated drug makers – companies whose business is primarily medtech or diagnostics, for example, are excluded.

Percentage-wise, small caps suffered the most in the first quarter, the cohort losing 14% of its combined market cap; higher-risk companies will typically suffer the most in any downturn. This group also provides the most impressive share price gains: Vir Biotechnology’s 173% advance sits at the top of the entire universe, with Cytodyn’s 167% gain not far behind.

Both of these developers have risen on hopes that their respective R&D projects will play a role in treating Covid-19, and indeed the pandemic is responsible for most of the gains seen in any market cap group.

The cohort of large drug makers excluding big pharma escaped with the smallest market cap erosion, largely thanks to huge advances by three companies thought most likely to deliver Covid-19 therapeutics. Gilead (up 15%), Regeneron (up 30%) and Japan’s Chugai (up 24%) have added more than $10bn each to their market caps in the first quarter, the biggest gains seen across the universe.

Standing out in the mid-caps are Biontech and Moderna, both of which feature in the universe’s top 15 share price gainers; both are leading coronavirus vaccine players.

The fact that big pharma, a group that logically should be a defensive play in a pandemic, was punished heavily illustrates the extent of the global stock market meltdowns. With major indices like the Dow Jones Industrial Average or FTSE-100 dropping around 27% across the first quarter, perhaps they actually got off lightly.

Off the 11 majors only Lilly ended the quarter higher, with Roche flat; Pfizer, Glaxosmithkline and Merck & Co were the biggest casualties, registering 17%, 15% and 15% declines respectively.

For an analysis of market valuation gains and losses that can be directly attributable to pandemic initiatives, check out Evaluate's Covid-19 EventAnalyzer.