How long does it take to lose $96 billion in market value? If you’re the three worst-performing major pharmas, only one year.
From the beginning to the end of 2016, Allergan, AstraZeneca and Roche posted a total market cap loss of $96.6 billion. On the contrary, the best three performers—GlaxoSmithKline, Johnson & Johnson and Merck—together gained more than $40 billion.
The analysis comes from EP Vantage, which examined how shares in the world's top drugmakers performed in 2016. One conclusion? Companies on the losing end might have to wait for a turnaround. Under the current circumstances—including pricing pressures and uncertainty about the incoming Trump administration—“things could get worse before they get better” for the industry as a whole, they said.
Glaxo saw the biggest share price gain at 14% in 2016, though its market cap in dollars actually fell because exchange rates. In its native currency, GSK’s market cap grew $12 billion. Amid all of the pricing pressure that has captured headlines for more than a year, GSK seems to be benefiting from its high-volume, low-cost strategy, a result of its massive asset swap with Novartis.
In the Big Pharma group, Allergan saw the biggest share price decrease at 33%, EP reports; the company's market cap fell the most in the class by $44.42 billion. AstraZeneca's 20% share price decline chopped $16.7 billion off its market cap, while Roche's shares fell 16% on the period, meaning a $35.5 billion market cap reduction for the Swiss pharma.
During the year, Allergan suffered with the collapse of its Pfizer megamerger and from poor third quarter results, EP noted. AstraZeneca, for its part, posted poor third quarter numbers as well and stumbled in its efforts to grow Brilinta sales.
On the flip side, second-place growth stock J&J, a “relatively safe haven amid the market turmoil,” delivered a 12% increase in share price, with Merck & Co. coming in third with 11%. J&J has had one of the strongest track records for getting new drugs to market in recent years, and its recently minted products continue to contribute to sales growth.
Merck scored big with Keytruda, its immuno-oncology med, which got a leg up in the fall when rival drug Opdivo, from Bristol-Myers Squibb, failed a key trial in previously untreated lung cancer patients.
Among the smaller companies EP examined, the five worst performers—Valeant, Teva, Vertex, Novo Nordisk and Alexion—together lost more than $132 billion in total market cap.
In no surprise to market-watchers, Valeant saw the biggest share price drop last year at a whopping 86%. The company has struggled to halt its freefall and is hobbled by past drug pricing missteps, accounting problems and, most importantly, an enormous debt burden. EP says it’s “hard to see how the company, burdened as it is with debt, can dig itself out of the hole it is in.”
The “best” performing stocks in the group of smaller companies each posted a decline during the year 2016, with Celgene shares putting up the lowest decrease at 3%. Biotech and specialty pharma stocks suffered enormously last year amid the pricing brouhaha, and, crucially, the presidential campaign, when tweets from Hillary Clinton sent shares into a nosedive.
But it’s not all doom and gloom for 2017. Potential positives include the hope for a tax holiday on repatriated cash, which would give U.S. companies bigger M&A war chests. Several important trial readouts among leading drugmakers "could also give the sector a boost," EP Vantage said. The analysts also said lower valuations could spur a round of dealmaking.