Stocks in the pharmaceutical sector have trended downward in recent months, along with the broader market averages. Though corporate earnings for most of the top pharma companies have remained relatively intact, thanks in part to cost-cutting initiatives, concerns regarding upcoming patent expirations and their impact on sales have weighed considerably on their respective stock prices. Further complicating matters has been the ongoing uncertainty in regard to the U.S. and European debt situations. In September, drug stocks declined about 4.9%, slightly outperforming the Dow Jones Industrial Average, which fell about 5.1%.
Pfizer to Start Animal Health Venture in China
In September, management at Pfizer (PFE - Free Pfizer Stock Report) announced its intentions to boost sales of veterinary medicines in China. The company has agreed to partner up with Jilin Guoyuan Animal Health Company to develop, manufacture, and distribute vaccines for pigs, poultry, and cattle, as well as new animal medicines. Pfizer’s already strong animal health business will also try to push its existing product line by expanding its sales force in the region. China is currently the second largest animal health market in the world and, in our view, the recent agreement should help to partially offset the impact of upcoming patent expirations.
Bristol-Myers Squibb Enters Agreement with Japanese Drugmaker
On September 21st, New York-based Bristol-Myers Squibb (BMY) announced it had agreed to a deal with Ono Pharmaceuticals for expanded rights to develop a potential cancer treatment. Though the drug is still in the early to mid-stages of testing, the demand for an effective cancer treatment remains extremely high, so much so that several top pharma companies have developed entire divisions dedicated to finding a treatment. If proven effective, the deal could be quite lucrative for Bristol-Myers Squibb. BMY’s stock price climbed on the news.
Johnson & Johnson’s Stroke Drug Not Ready Yet
Johnson & Johnson (JNJ - Free J&J Stock Report) linked up with German drugmaker Bayer earlier in the year to manufacture an experimental stroke prevention drug called Xarelto. In the third quarter, the FDA indicated the product is not yet ready for approval citing a lack of substantial evidence showing its effectiveness. It appears more trials will be necessary in order to sway regulators. In our view, this will likely result in further market approval delays. Johnson & Johnson’s stock price remained relatively flat on word of the news, while shares of Bayer slid as much as 13%. Bayer is a smaller company than J&J and clearly more reliant on the success of Xarelto.
GlaxoSmithKline Experiences Setback on New Lupus Drug
The U.K.-based drug giant GlaxoSmithKline (GSK) announced in late September that regulators are balking on its new lupus drug, Benlysta, which it co-markets with Human Genome Sciences. Apparently, regulators are considering not providing national health insurance coverage for the product, indicating that the benefits do not justify the cost. This could be a major blow to Human Genome Sciences (HGSI) as its business is more reliant on the success of Benlysta than its partner. Shares of HGSI declined over 7% upon the announcement.
Merck Sells Interest in Joint Venture
Merck (MRK - Free Merck Stock Report) announced it has sold its 50% interest in its joint venture with Johnson & Johnson. The two linked up back in 1989 to develop, manufacture, and distribute over-the-counter products in the United States. Under terms of the transaction, J&J will pay Merck a one-time payment of $175 million in exchange for the stake. Management at Merck noted that termination of the deal was reflective of the company’s renewed focus on expanding the wholly-owned consumer products division it acquired in the Schering-Plough merger. Upon completion, J&J will own exclusive rights to several key OTC products including, Pepcid, Mylanta, and several other brands in the United States and Canada. Merck will retain the rights to the Pepcid brand outside the U.S. and Canada.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.