One Product's Value

Sep 30, 2002

Like the rest of the financial community, market-weary pharma and biotech investors have become hypersensitive to news reports of the cyclical ups and downs of companies' research and regulatory activities. Recently, that hypersensitivity translated into volatility in market valuation for Big Pharma. Mara Goldstein, a pharma analyst and executive director for CIBC World Markets, says large institutional investors have always reacted immediately to bad news about pharma pipelines' productivity, but she agrees that the stories have generated more media attention than usual in recent months.


Stock Performance September 2001-2002
"It's a reflection of diminished earning power in the group-at least for the near term," she says. "That's why investors sell shares."

In March, Bristol-Myers Squibb's stock price dropped 15 percent on the day it released results from a clinical trial of its cardiovascular product Vanlev (omapatrilat), which found that it offered no therapeutic superiority for congestive heart failure over Merck's Vasotec (enalapril) and caused more side effects than other competitive products for hypertension. In July, the National Institutes of Health cut short the hormone replacement therapy arm of its Women's Health Initiative study, and Wyeth's stock plummeted 24 percent. In August, AstraZeneca's shares lost 16 percent of their value after research failed to show improved survival rates for non-small-cell lung cancer patients treated with its experimental treatment Iressa (gefitinib) as an adjunct to standard chemotherapy.

In that case, Goldstein believes that investors' reactions to the Iressa news were the culmination of multiple hits to AZ's pipeline and marketed product lines. She cites activity in its cardiovascular and gastrointestinal franchises as the key to understanding the behavior exhibited that day. "Iressa's only one product, but the news came after the delay of Crestor (rosuvastatin) and the uncertain fate of Prilosec (omeprazole)," she says. Goldstein attributes a good deal of the industry's woes to FDA's concern for pharma companies' risk management of new products and the agency's subsequent slowdown of approvals. She advises companies to deal proactively with FDA concerns about drug safety. Susan Noonan, president of public and investor relations agency Noonan Russo PResence EURO RSCG, counsels clients to take a long-term view of their market valuation and not dwell on short-term losses. "You can't necessarily minimize the impact of negative news on stock depreciation," says Noonan, "but, hopefully, you've kept your credibility, which is the most important thing in the long run."