Investors have been expressing their discontent with the financial results and corporate strategies of drugmakers in recent days. Bristol Myers Squibb (BMY) witnessed a 3.6% drop in shares following the release of its third-quarter earnings on Thursday, with another 2% decline on Friday. Similarly, AbbVie (ABBV) shares fell 6.3% on Friday following its earnings report.
Merck (MRK), on the other hand, experienced a temporary 1.9% increase in shares after reporting earnings but saw a 2.7% drop on Friday, relinquishing its gains. Johnson & Johnson (JNJ), which reported third-quarter earnings on October 17, reached new 52-week lows by Thursday.
All of these instances of decline pale in comparison to the significant plunge in Sanofi (SNY) shares on Friday. The company reported earnings that fell below expectations and announced plans to separate from its consumer-health division, causing its American depositary receipt to plummet by 19%. This drop wiped out over $20 billion in market value.
The upcoming earnings reports from other major pharmaceutical stocks are expected to hold more uncertainty for the sector. For months, investors have shown lukewarm interest in pharmaceutical stocks, as evidenced by the 7.2% drop in the S&P 500 Pharmaceuticals industry index this year, while the S&P 500 has risen by 7.2%.
The recent selloff in response to earnings announcements indicates that a quick rebound is unlikely for these stocks. It also dispels any remaining illusions that pharmaceutical stocks serve as a safe haven in an uncertain market. As Asad Haider, head of U.S. healthcare research and sector strategist at Goldman Sachs, stated in a note on Monday, “Pharma… again showcased its unreliability as a defensive play.”
Uncertain Outlook for Big Pharma Companies
Despite the recent success of Novo Nordisk (NVO) and Eli Lilly (LLY) in the obesity medicine market, the strategies of other executives in the pharmaceutical industry have failed to impress investors. The sector currently faces unfavorable conditions that are causing concern.
Changes to the Medicare drug-price negotiation program will significantly reduce the number of years in which drugmakers can freely set prices for medications targeting older Americans. Additionally, opposition on antitrust grounds may make mergers more challenging. Furthermore, high interest rates have made drug companies’ dividends less appealing to investors.
Additionally, the pharmaceutical business itself continues to face significant challenges. Companies such as Pfizer (PFE), for example, are bracing themselves for a wave of patent expirations in the near future, which will enable other drugmakers to produce their key medicines. Bristol and Merck are also dealing with impending patent expirations.
“There is a dire need for significant progress in terms of corporate strategy among pharmaceutical companies. The upcoming drug price negotiations will further pressure the industry, and management teams will need to find the best way to position their businesses between research and development and external business development,” commented Mizuho healthcare equity strategist Jared Holz in an email to investors on Monday.
The negative sentiment among investors could have implications for other players in the pharmaceutical industry. Several companies, including Pfizer, GSK, Lilly, Novo, Amgen, Regeneron Pharmaceuticals, and Moderna, are set to release their earnings reports this week. These large-cap biotechs have also been affected by similar dynamics.
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