Drug & BioHealth: How Worries May Hurt More Than News (MRK, PFE, BMY, TEVA, AMGN, BIIB, DNA)
It seems that the differences between old Big Pharma key drug powerhouses and established biotech players is becoming more and more of a blur rather than any firm lines. Before you consider this lunacy, remember the analogy that all biotech companies are seeking to become established drug companies. If you have watched Big Pharma mergers with biotechs, you’d wonder why there are any biotechs with drugs or pipelines left on the market.
Today we are seeing pressure on Merck & Co.(NYSE: MRK) after UBS issued some cautious stance on Gardisil sales. What is interesting about this call is that its primary competition on the U.S. drug market was just last week pushed out at least 6 months beyond what most were expecting.
It seems we almost never see a day without Pfizer Inc. (NYSE: PFE) not hitting a 52-week low or not at least being down on concerns that patents will expire and the company’s pipeline looks more like a pie in the sky line.
Bristol-Myers Squibb Co. (NYSE: BMY) has many of the same concerns as Pfizer as many of its investors have thrown in the towel here, but it has the added uncertainty of what this will look like beyond 2008 after the company goes through a miniature break-up.
If you think that generics coming on market is an issue, you may appreciate the irony as we see generics come under pressure from two arena. Big Pharma companies are taking the stance of slashing their prices to meet or come very close to generics as the generics get launched. This causes fears that generic margins will go to hell in a hand basket. Now take Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA). This one was hit hard recently after Mylan Labs (NYSE: MYL) signed a licensing pact in India to produce a generic version of Teva’s COPAXONE for MS treatment. Yep, that is the generic’s number one name brand drug it makes on its own. Go figure, a generic maker challenged by a generic.
But this doesn’t stop at Big Pharma and doesn’t stop at generics. Even many of the key biotech leader stocks have been under fire of late.
Amgen Inc. (NASDAQ: AMGN) has gone from its own cycle of boom to bust to rust. It ENBREL and other franchises have peaked for the time being over reimbursement rate concerns and Black Box warnings on its drugs with extreme warnings. While the worst is likely behind it and while we feel this is merely priced like a drug stock, there are very few traders looking for a major move in the near-term.
Biogen-Idec (NASDAQ: BIIB) is a worry that almost hasn’t gone away. Sure, the weakness after the post-TYSABRI withdrawal has been overcome, but this stock is believed to have very few prospective buyers based upon the size and target markets with today’s $17+ Billion market cap. We still believe the company mishandled its TYSABRI withdrawal because the treatment benefits looked so much better than the PML side effect percentages.
Take the giant Genentech (NYSE: DNA) for an example. The largest biotech is rapidly becoming a dead money stock. It keeps growing but concerns that its Avastin won’t continue to get perpetual approval to cure all cancers. Throw in the point that its individual drug sales seem to disappoint analysts routinely.
So where do we go from here? We are in an election year and it doesn’t take a rocket scientist to look at the health insurers and other medical-related sectors to determine that caution is going to prevail over extreme bullish sentiment of the past. We still think there will be many substantial mergers in small-cap and mid-cap biotechs and among many of the smaller providers that fit into safe niches. But there is going to be some added pain and caution as the most likely scenario(s) throughout the summer and into the fall in many of the key players in this field of drug and biotech.
At some point we’ll realize how cheap some of the names have gotten, but every effort to identify this as an inflection point has been met with added pain. Many of these companies will start reporting earnings over the next couple of weeks. You can bet that traders will be looking closely to start picking their spots or deciding to stay on the sidelines.
Jon Ogg
July 7, 2008