Europe and Asia provide a safe haven as US stocks falter

Non-US big biopharma stocks led the way in the third quarter, suggesting that those looking for investment gains would do best to search further afield.

It was a tale of two continents when it came to the performance of some of the industry’s biggest companies and stock indices over the past nine months. Those eschewing the conventional wisdom of betting on biopharma’s largest single market did much better, with European investments outperforming.

The strong showing so far this year from indices tracking large European drug makers   contrasts with a lacklustre performance from the likes of the Nasdaq biotech index and the flat returns from the S&P Pharmaceuticals. The noise around drug pricing as the US heads towards the 2020 elections is only likely to increase, which could spell a rocky end to the year for the sector. 

Stock index 9-mth change 
Nasdaq Biotechnology (US) 3%
S&P Pharmaceuticals (US)  0%
Dow Jones Pharma and Biotech (US)   0%
S&P 500 (US) 19%
DJIA (US) 15%
Dow Jones Stoxx 600 Healthcare (EU)   20%
Thomson Reuters Europe Healthcare (EU) 14%
Euro Stoxx 50 (EU) 20%
FTSE-100 (UK) 10%
Topix Pharmaceutical Index (Japan)  3%

Some of the US stagnation has to do with the wider global economy, with the country’s trade war with China affecting US stocks across the board. US biopharma might also have been a victim of its own success; last year the sector ticked up strongly towards the end of the year, as investors tried to find safe havens in a volatile market, and this has made for harder comparisons.

Europe almighty

The political and economic volatility in the US cleared the way for non-US based companies to shine. Roche investors appear to have stopped fretting about biosimilar competition for some of the company’s biggest drugs, and the continued strong performance of new products like Ocrevus and Hemlibra, plus clinical wins for Tecentriq, prompted an 19% lift in the Swiss company's shares.

Hemlibra’s originator, Chugai, has also benefited from the drug’s sales, with its shares rising 32% over the year.

Some wins from Astrazeneca's oncology pipeline helped this group become one of the best big cap performers over the past nine months, as Tagrisso and Lynparza notched up strong sales and Imfinzi impressed in clinical trials. Elsewhere, Emma Walmsley’s overhaul and refocus of Glaxosmithkline resulted in a 17% share price lift.

Big pharma: top risers and fallers in first 9 months of 2019
  Share price Market capitalisation ($bn)
  9-mth change (local currency) 30 Sep 2019 9-mth change
Top 3 risers
Roche 19% 253.3 42.7
Astrazeneca 17% 116.9 20.7
Glaxosmithkline 17% 108.4 12.2
Top 3 fallers
Abbvie (18%) 112.0 (26.7)
Pfizer (18%) 198.7 (53.6)
Eli Lilly (3%) 108.0 (11.3)*
Note: *Lilly's share count decreased by 70 million.

The gains made by European companies at the top of the table were juxtaposed with the big falls experienced by US companies at the bottom. Between them Abbvie, Pfizer and Lilly lost a combined $92bn of value, some of the heaviest losses recorded by big pharma stocks over the past five years.

Abbvie continued to flounder on investor disquiet over its decision to acquire Allergan and ongoing concerns that the company cannot find a way out of its dependence on Humira. Corporate activity was also behind Pfizer’s fall as investors took a dim view on its plans to merge its generics division with Mylan.

Pfizer’s announcement that it was lowering full-year earnings guidance and disappointing forecasts for its remaining products also contributed to one of the biggest share price slides for the company in a decade. Lilly has also failed to recover after it lowered full-year revenue expectations in the first quarter.

Race to the bottom

Among the world’s other big drug makers, with the exception of Celgene, the top performers were all Asian stocks. Jiangsu Hengrui Medicine continued to consolidate its position as one to watch in terms of China’s growing strength in oncology.

Celgene’s presence at the top of the big caps was purely due to the increasingly stringent FTC making Bristol Myers Squibb jump through competition hoops, including the disposal of Otezla, to get its acquisition done. This deal is now expected to close at the end of the year or in early 2020.

Other big drugmakers ($25bn+): top risers and fallers in first 9 months of 2019
  Share price Market capitalisation ($bn)
  9-mth change (local currency) 30 Sep 2019 9-mth change
Top 3 risers
Jiangsu Hengrui 84% 70.4 25.6
Celgene 55% 51.9 23.8
Chugai 32% 43.4 11.8
Top 3 fallers
Celltrion (26%) 17.9 (6.8)
Regeneron (26%) 30.0 (9.8)
Biogen (23%) 42.9 (17.7)

In the meantime, little changed for the biggest fallers this quarter except for their respective positions. Celltrion’s production problems at its main factory, which started earlier in the year, coupled with increasing competition for its biosimilar versions of Rituxan and Herceptin, saw it overtake Regeneron and Biogen to claim the quarter’s wooden spoon.

Regeneron continues to struggle with replacing sales of its biggest product, Eylea, which are predicted to peak this year. Meanwhile Biogen has never really recovered from the implosion of aducanumab in March. A series of other clinical setbacks including last month’s decision to ditch elenbecestat, the last Bace inhibitor in development, and the canning of BG00011 in idiopathic pulmonary fibrosis following safety concerns, have not helped assuage investors’ fears about Biogen’s ageing and lacklustre pipeline.

The recent departure of the group's head of research, Michael Ehlers, is another blow and could add further pressure on the company to indulge in M&A. However, going down this route would come with considerable risk and, if executed poorly, could see Biogen remain among the sector's worst performers.

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