Investors have been hating what drugmakers have to say about their financial results and their corporate strategies.
When
Bristol Myers Squibb
(ticker: BMY) reported its third-quarter earnings on Thursday, shares ended the day down 3.6%, and fell another 2% on Friday.
AbbVie
stock (ABBV) fell 6.3% on Friday after that company reported earnings.
Merck
(MRK) shares climbed 1.9% on Thursday after its earnings report, but then more than gave up those gains on Friday, dropping 2.7%.
Johnson & Johnson
(JNJ), which reported its third-quarter earnings on Oct. 17, was setting new 52-week lows by Thursday.
All of those drops were just bumps in the road compared with the rout in
Sanofi
(SNY) shares on Friday. The company reported earnings, with financial guidance that was lower than expected, while announcing plans to separate from its consumer-health division. The company’s American depositary receipt dropped 19%, erasing more than $20 billion in market value.
With most of the rest of the big pharma stocks set to report earnings by the end of the week, this is an uneasy moment for the sector. Investors have been lukewarm on pharmaceutical stocks for months. Before the open on Monday, the
S&P 500 Pharmaceuticals industry index
had dropped 7.2% this year, while the
S&P 500
was up 7.2%.
The earnings selloffs seems a signal that the stocks aren’t like to rebound soon, and should do away with any lingering illusions that pharma stocks represent a haven in an uncertain market.
“Pharma… again showcased its unreliability as a defensive” play, Asad Haider, head of U.S. healthcare research and sector strategist at Goldman Sachs, wrote in a Monday note.
Aside from
Novo Nordisk
(NVO) and
Eli Lilly
(LLY), whose new obesity medicines have captured the imaginations of investors and boosted their valuations to stratospheric levels, investors seem uninspired by the strategies of the executives leading the big pharma companies. Conditions are unfavorable for the sector.
The new Medicare drug-price negotiation program will shorten the number of years in which drugmakers can freely set prices on medicines for older Americans, while opposition on antitrust grounds could make mergers more difficult. At the same time, high interest rates have made drug companies’ dividends less attractive.
Meanwhile, the underlying challenges of the pharmaceutical business aren’t going away. Companies like
Pfizer
(PFE), which set a new 52-week low on Friday, are preparing for a wave of patent expirations in the coming years that will allow other drugmakers to make some of their key medicines. Bristol and Merck are also facing patent expirations.
“Much progress needed with respect to corporate strategy among the Pharma peer group as drug price negotiations over the next year place further pressure on the space while management teams must solve for how to best position their respective businesses between R&D and external business development,”
Mizuho
healthcare equity strategist Jared Holz wrote in an email to investors on Monday morning.
Investors’ sour mood could spell trouble for the rest of the pharma pack, many of whom report earnings this week.
Pfizer
reports on Tuesday, followed by
GSK
(
GSK
) on Wednesday and both Lilly and Novo on Thursday. Also reporting this week are some of the large-cap biotechs, which have been hit by similar dynamics.
Amgen
‘s (AMGN) results arrive on Tuesday, while
Regeneron Pharmaceuticals
(REGN) and
Moderna
(MRNA) will report on Thursday.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com
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