A Winner in the Booming Drug Market
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The drug market is finally experiencing a boom in that drug manufacturers are focusing less on the broader market and more on finding cures and treatments for rare and deadly illnesses. Of course, regulatory bodies stand in their way, which means that the situation brings with it both winners and losers in the pharmaceutical industry. The winners and losers we will look at today are AstraZeneca (NYSE: AZN), Bristol-Myers Squibb (NYSE: BMY), Amylin Pharmaceuticals (NASDAQ: AMLN), Johnson & Johnson (NYSE: JNJ), and Eli Lilly (NYSE: LLY).
Let's have a look at some of the winners first.
Eli Lilly has chosen to focus on diabetes medications. This is, indeed, an illness that requires a lot of attention at present, as there are not many very effective drugs available for its treatment. The drug (Baricitinib) is still, however, undergoing trials and tests, so it will be a little bit of a wait before we can conclusively decide whether this is an effective treatment for the condition or not. In fact, the excitement regarding the drug has somewhat died down. Although Eli Lilly's shares are at the highest that they have been all year just under $43 the company's net income has slipped a bit since this time last year (down about $236 million since September). The diabetes medication would surely give a boost to that number and to its already healthy share price.
AstraZeneca is another pharmaceutical company that understands the importance of bolstering its pipeline drugs in order to make a significant difference in the market. The company recently announced that it would team up with Bristol-Myers Squibb in order to work together collaboratively on diabetes medication, a partnership that could do both stocks good in the near future should they be successful. Recently, Bristol-Myers Squibb decided to acquire Amylin, a company with a number of excellent drugs that are focused on the treatment of diabetes, AstraZeneca and Bristol-Myers Squibb's target condition. This acquisition may help account for the near 7% rise in share price that Bristol-Myers Squibb saw since April of this year.
Amylin has a number of drugs already on the market as well as some in development that would do AstraZeneca good, too. However a number of investors are what you may describe as "uninspired" by the news. Many feel that AstraZeneca has entered the partnership out of desperation in an attempt to bolster its own pipeline with external products as it cannot create any original products itself. When the news was announced, shares in AstraZeneca dipped significantly. Since January we have seen a major decline in AstraZeneca share prices with a major dip in June. Although it has recovered from that dip it has yet to reach a high once more. As things are going it may yet reach its target of $48.57, but it is uncertain whether this will indeed be the case.
Of course finding a new drug, or finding a new use for and old drug, does not necessarily guarantee success for a pharmaceutical company. The drug still has to meet regulatory approval, and not all drugs make the grade as easy as their creators would like them to.
This brings me to the losers in the dug revival. Johnson & Johnson is one of those losers. The company recently announced that the FDA denied approval for a new use of its blood clot drug Xarelto. The decision was a close one but unfortunately it does not work in Johnson & Johnson's favor, no matter how close the company was to having a new use for its drug. This is a pity because Johnson & Johnson could do with a bit of a financial boost.
Although shares so far this year have increased steadily for the company, there is still a long way for it to go before it achieves a decent share price once more. A new drug such as this could have boosted its profits and improved its revenue, which is down nearly $100 million since January of this year.
Then we have Sanofi. The company has literally not brought a single new drug to the market in two years. Recently, it brought the first offering forward in ages (semuloparin, a treatment designed to prevent blood clots among patients receiving chemotherapy), but it was also not approved by an FDA advisory panel, a major and significant setback for the company. Apparently Sanofi has not provided a clear picture of who would benefit from the treatment. Sanofi's revenue has been on a straight decline for the last year and the company needs a product to buoy that number (down almost $1 billion since September of last year)
The conclusion for now? The winners look like the way to go. Bristol-Myers Squibb may be the best of those. Johnson & Johnson seems neutral for now, though the recent loss hurts and Sanofi should be avoided at all costs. AstraZeneca and Eli Lilly look good, though with prices near their 52 week highs, there may not be much room to grow further.
jordobivona has no positions in the stocks mentioned above. The Motley Fool owns shares of AstraZeneca plc (ADR) and Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.