Stock market strife subsides in second quarter

But large gains for some big pharma players flatter the overall figures.

First, the good news for biopharma investors: after a torrid first quarter on the stock markets it seems like things are improving. The latest analysis shows a $141bn boost to the valuation of companies in the Evaluate Vantage universe over the second quarter.

However, a look beyond this headline figure shows that this gain was driven by big pharma, and one group in particular that keeps fattening up, ironically on high hopes for its obesity franchise. Amazingly, Lilly is now the largest pharma player by market cap, having edged just ahead of Johnson & Johnson.

This analysis includes around 500 globally listed biophama stocks tracked by Evaluate Pharma. Only drug developers are considered, and only those that started 2023 with a market cap of at least $250m. Companies are assigned to their market cap cohort at the start of the year, and remain there throughout the year.

Lilly’s Mounjaro has yet to be approved for obesity, but is already being talked about as the first $100bn-per-year drug; and the group has another, potentially more potent asset following behind. The massive potential of this market, alongside a phase 3 win with the Alzheimer’s project donanemab, helped Lilly’s stock climb 39% in the second quarter. The group still has much to do to justify this valuation.

More broadly, big pharma had a turnaround in fortunes versus the first three months of the year, when this cohort lost over $200bn in value. However, there were still losers in the second quarter, chiefly Pfizer – as the Covid good times come to an end – and Abbvie.

The performance of the large-cap cohort was disappointing, with an almost $50bn loss in value overall during the second quarter. Among the few climbers over this period were the Alzheimer’s players Eisai and Biogen.

While the mid-cap group was flat, the small-cap cohort, which is by far the largest with 419 companies, recovered somewhat in the second quarter. This probably reflects an uptick in the closely-tracked biotech index, the XBI, in April and May. The small end of the sector has suffered particularly badly in the bear market, though signs of life in the IPO market are raising hopes for a slight thawing in investor sentiment.

Overall, however, this analysis suggests that any upward movements are being driven by individual stories, rather than a rising tide. Less than half of the 500 stocks in the overall universe rose in the second quarter. While this is an improvement on the first quarter, when only a third registered gains, if this is a recovery it is very early one.

These numbers also suggest that a recent pickup in biopharma M&A has yet to tempt back investors. With lingering questions about the impact of an antitrust crackdown and the Inflation Reduction Act, there are plenty of reasons why shareholders might be concerned about the growth prospects of the biopharma sector.

It will be some time until the full repercussions of the FTC's actions, and the US government's efforts to rein in drug prices, become clear. Throw in ongoing concerns about rising global inflation and climbing costs of capital, and it seems likely that the equity markets will remain jittery for several months to come. 

Note: Evaluate Vantage’s universe is constructed from drug developers listed globally, with the majority sited in the US, Europe or Japan. Chinese developers must have a dual ex-China listing for inclusion. The big pharma cohort consists of 11 companies: Pfizer, J&J, Merck & Co, Lilly, Abbvie, Roche, Astrazeneca, Novartis, Bristol Myers Squibb, Sanofi and GSK.

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