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A Rocky First Quarter For Big Pharma Stocks

The economic impacts of the novel coronavirus pandemic have been widespread, with big pharma companies seeing double-digit declines in their valuations over the course of the first quarter of 2020, with a few exceptions. Ten of 13 big pharma stocks reviewed by Scrip suffered double-digit declines in value from 2 January through 31 March, and all but one declined to some degree.

Nonetheless, the sector outperformed the S&P 500, with only one of the 13 companies posting a higher quarterly percentage loss than that index as of 31 March – Bayer AG, whose stock trades in the EU.

The outlier was Eli Lilly & Co., which saw its valuation increase by nearly 5% over the first three months of 2020, closing on 31 March at $138.72 a share (See table below).

At the other end of the spectrum, Bayer sustained the most substantial decline, falling more than 28% to €52.85 per share at quarter’s end. Barely affected by the pandemic was Roche, which saw its valuation decrease by less than 1% by the end of March, while the other 10 big pharmas’ declines ranged from 8.78% to 19.25% during the quarter.

By contrast, the S&P 500 index declined 24.17% over the January-to-March period.

Q1 2020 Big Pharma Stock Performance

Only one of 13 companies listed here saw its stock price rise between the start of this year and the end of the first quarter; 11 of the firms had double-digit declines. However, all but one – Bayer AG, which trades in Europe – performed better than the S&P 500.


While the biopharma industry overall is expected to be more resilient during the COVID-19 pandemic than other industries, some impact seems certain as companies adjust to the shift to online commercial promotion, reduced medical visits, delayed clinical trials and other changing business dynamics.

First quarter sales and earnings calls are providing the first substantial granularity into specific business impacts from the global response to COVID-19. Johnson & Johnson, the first big pharma to report first quarter numbers on 14 April, showcased the resiliency of pharmaceuticals since the company has exposure across the health care spectrum.

J&J's stock price experienced less volatility than most of its big pharma peers during the first quarter. Its valuation dropped by 8.78% to $133.15 per share on 31 March, but returned to positive territory on the day of its earnings call, closing up 0.1% year-to-date at $146.03.

J&J reported that pharmaceutical sales rose 8.7% during the first quarter, with consumer health sales up 9.2%, while medical device sales declined by 8.2%. The company substantially lowered its 2020 financial forecast, but said the change primarily was driven by medical device expectations. (Also see "J&J Q1 Financials Are All About COVID-19 Progress And Impact" - Scrip, 14 Apr, 2020.)

SVB Leerink analyst Danielle Antalffy said J&J’s diversified business model and balance sheet shone brightly in the quarterly report. “Regardless of COVID, JNJ is a company – and a stock – that we believe will be relatively resilient amidst macroeconomic turmoil and ultimately could emerge in an even stronger position once the dust settles, given the company's significant financial flexibility to continue investing in the business at high levels,” Antalffy wrote on 15 April.

Geographic Diversity, Critical Care Products May Help Offset Pandemic Issues

J&J’s resilience may provide an indicator of big pharma financial performance in the first quarter as its peer companies roll out their quarterly statements during the next few weeks. Different factors should mitigate the impact amongst companies, including geographic diversity, the ratio of critical care versus less-critical products in a company’s portfolio, and the pandemic’s near-term impact on launches of new products and new indications.

A 6 April overview of EU-based pharma companies by Credit Suisse suggests that Novartis AG, with its focus on migraine and psoriasis therapy, might suffer during the pandemic as such products take a back seat to those for critical care settings. By contrast, GlaxoSmithKline PLC and Roche face less exposure thanks to a heavier focus on critical-need products and procedures. Credit Suisse views Novartis and Sanofi as benefitting from geographic diversification of their business and less reliance on the US market, while saying Roche faces greater risk due to higher US market exposure.

Morningstar analysts said they expect the pandemic’s commercial impact to be largely transient. “We don’t expect much impact to drug sales due to the economic disruptions caused by the coronavirus since drug demand tends to be highly inelastic and governments are likely to prioritize drug supply,” the firm’s 6 April report states. “Drug utilization in the near term will likely face disruptions, especially for new drugs and drugs with new indications, but we expect entrenched drugs to face only minor impacts.”

Those more established products typically need less support from commercial teams, but launches likely will be hindered – and in some cases delayed – as sales reps can’t meet with doctors in person. (Also see "Bad For Pharma: Sales Reps And Patients Are Staying Home" - Scrip, 17 Mar, 2020.) Morningstar pointed to ZS Associates research that indicates 47%-48% of physicians are willing to be visited in person by pharmaceutical reps, but only between 8%-10% open emails from drug makers.

Morningstar also said it anticipates minimal pandemic-related impact on supply chain, noting that in Italy drug manufacturing was allowed to continue as normal despite other stringent stay-at-home requirements for workers. It suspects most companies have at least six months of supplies for most of their products. Merck said it has a six-to-12-month supply of most its drugs, “and we expect that most other large firms carry similar levels,” the report states.

Here is a detailed look at how analysts think the pandemic will affect individual big pharma companies:

Companies Taking The Biggest Valuation Hit

Bayer (down 28.11% as of 31 March) may be buoyed in the near term by its large established products portfolio, according to Credit Suisse, while sales other newer products may suffer from reduced face-to-face promotion to doctors. Its geographic diversification also may boost the German health care giant, which gets about 30% of sales from Europe and 35% from the US, Credit Suisse noted, if US sales turn negative during the pandemic.

Morningstar believes sales of the cardiovascular drug Xarelto (rivaroxaban) will fall by about €600m ($655m) in 2020 due to doctors seeing fewer atrial fibrillation patients in the near term, while coronary and peripheral arterial disease indications will suffer from fewer sales reps in the field. “These new indications need the sales effort to drive sales, as we believe doctors are less likely to embrace Xarelto for these indications without strong educational support and marketing from Bayer,” the report says.

Bayer's ophthalmology drug Eylea (aflibercept) could see a roughly €300m drop-off in sales, Morningstar added, with both patients and doctors electing to delay treatment. (Also see "Xarelto And Eylea Keep Bayer Buoyant" - Scrip, 27 Feb, 2020.)

Diversified pharma GSK (down 19.25%) also could see a lift from coronavirus-related panic buying, Deutsche Bank analyst Richard Parkes said. Sales of respiratory and HIV drugs as well as consumer health care products may have risen during the first quarter if that was the case, but a downturn may be felt in the second quarter. Parkes predicts GSK will report a 5% decline in overall sales at constant exchange rates for the first quarter, with sales increases of 2% for the pharma business, 12% for vaccines and 6% in the consumer unit.

Morningstar thinks GSK will be insulated largely from the pandemic because some of its newer products, such as the HIV therapy Dovato (dolutegravir/lamivudine), aren’t expected to provide material revenue before 2021. (Also see "ViiV's Dovato: Treatment-Naive HIV Is Earmarked For The "Complete Regimen"" - Scrip, 9 Apr, 2019.) But while its new drug Trelegy (fluticasone/umeclidinium/vilanterol) and other respiratory drugs may benefit from lung problems cause by COVID-19, sales of Shingrix could suffer if patients see the shingles vaccine as a low priority during the pandemic, the group said. (Also see "GSK's Trelegy On Track To Be First Triple Inhaled Regimen For Asthma" - Scrip, 2 Oct, 2019.) 

Vaccines and other more established products also could see sales declines for Pfizer Inc. (down 16.61%) as patients shy away from follow-up visits for ongoing health conditions to avoid exposure to COVID-19, Morningstar said, including the blockbuster pneumococcal vaccine Prevnar 13. Sales of the Eliquis (apixaban) for atrial fibrillation and cancer drug Ibrance (palbociclib) could fall $600m this year, the analysts said.

Recent launches also will be an area of greatest impact for Pfizer, including cancer therapies Xtandi (enzalutamide), Mektovi (binimetinib) and Braftovi (encorafenib), and the amyloidosis drug Vyndaqel (tafamidis), with doctors less inclined to try new drugs while preoccupied with the pandemic. Morningstar predicted a combined $500m decline in 2020 sales for those products. (Also see "Pfizer Vyndaqel Launch Surprises With An Early Burst Out Of The Gate" - Scrip, 29 Oct, 2019.) 

Meanwhile, Amgen Inc. (down 15.56%) is projected to see a $450m sales decline on lowered growth assumptions for its newer products, including cholesterol drug Repatha (evolocumab), migraine therapy Aimovig (erenumab), and osteoporosis drugs Evenity (romosozumab) and Prolia (denosumab), according to Morningstar. “We expect less switching among immunology therapies, boosting our Enbrel estimates and lowering our Otezla estimates,” the note adds. (Also see "Otezla Is Amgen’s Main Growth Driver As Net Drug Pricing Declines " - Scrip, 30 Jan, 2020.)

An SVB Leerink analysis on 13 April made similar predictions, but expected Amgen’s oncology and nephrology products to be less affected. Amgen has said it does not expect any significant impact on use of Kyprolis in the second- and third-line multiple myeloma settings.

Companies Taking A Sizable Hit To Valuation

Analysts generally agree that AbbVie Inc. (down 14.92%) will be hit hard by the lack of in-person detailing for newer products such as psoriasis drug Skyrizi (risankizumab) and rheumatoid arthritis drug Rinvoq (upadacitinib) as well as new oncology indications for Imbruvica (ibrutinib) and Venclexta (venetoclax) – launches that are significant parts of AbbVie’s plan for making up for the loss of exclusivity for its autoimmune titan Humira (adalimumab). (Also see "Countdown To The Allergan Merger, And More From AbbVie’s Q4 Earnings" - Scrip, 7 Feb, 2020.)

A 6 April note by Morningstar analysts predicts Skyrizi and Rinvoq will lose about $400m in sales revenue this year due to the pandemic, while Venclexta and Imbruvica will bring AbbVie about $600m less than expected this year. SVB Leerink expects Skyrizi and Rinvoq to suffer from reduced patient adoption over the next one or two quarters, due to “reduced personal promotion and disruption to previously scheduled visits for treatment starts or switches.”

Business prospects for AbbVie’s acquisition of Allergan PLC will be affected too – Morningstar expects a 50% decline in aesthetic use of Botox (onabotulinumtoxinA) for the remainder of 2020. (Also see "AbbVie Will Use Allergan Revenue To Fund Combined Firm's Large R&D Pipeline" - Scrip, 27 Jun, 2019.) 

Sanofi (down 13.73%) is seen, along with Novartis, as protected from pandemic loss due to its relative lack of US market exposure, according to Credit Suisse. Roche looks to the US for approximately 50% of revenue, while Leerink estimates that Sanofi derives 37% of sales from the US, 28% from Europe and 35% from the rest of the world.

“Although roughly 40% of Sanofi’s sales come from products that require in-office administration, we think the majority of these revenues should be defensive since many are life-saving products that are less likely to be skipped even during this pandemic,” Leerink’s Porges wrote, referring to enzyme replacement therapies Cerezyme and Myozyme, hemophilia therapies Alprolix and Eloctate and oncology drugs. Sanofi’s diabetes franchise also enjoys the protection of recurring demand.

Deutsche Bank’s Parkes said Sanofi’s first quarter revenues could see some longer-term moderation in its consumer business “and a likely drag on travel vaccines near-term,” he wrote 9 April. Morningstar expects the eczema drug Dupixent (dupilumab) will be affected by reduced new patient starts with a €500m (about $546m) reduction in 2020 sales. (Also see "Sanofi's €10bn Dupixent Plan: 'We're Going To Put The JAKs Properly In Their Place'" - Scrip, 12 Dec, 2019.)

In terms of newer products,Credit Suisse anticipates that limitations on sales rep detailing will negatively impact recent launch products for Novartis (down 13.16%), including gene therapy Zolgensma, breast cancer drug Piqray, leukemia drug Arzerra, multiple sclerosis drug Mayzent, and Beovu for wet age-related macular degeneration. (Also see "Bad For Pharma: Sales Reps And Patients Are Staying Home" - Scrip, 17 Mar, 2020.)

Morningstar expects recently launched drugs will have “a fairly solid rebound in sales ramp … in 2021 following the likely slowing of coronavirus disruptions, which makes the slower sales ramps less damaging to [Novartis’s] valuation.”

Deutsche Bank, however, said Novartis has been hurt only slightly by the pandemic so far, partly because 60% of its sales come from specialty drugs while about 15% derive from hospital-administered therapies whose uptake could be hindered by clinician focus on COVID-19 patients.

Companies Hit Less Severely

Morningstar posits that slower uptake of Merck’s Keytruda in Europe could enable Bristol’s PD-1 inhibitor Opdivo to maintain market share. (Also see "BMS Earnings Beat Estimates, But Opdivo Sales Slide Continues" - Scrip, 6 Feb, 2020.) Overall, the pharma’s cancer franchise is well established, offering insulation from meaningful impacts due to the pandemic, the report says.

The anticoagulant Eliquis is expected to produce $500m less in sales than previously projected for BMS, Morningstar said. Likewise, the group said new portfolio additions from the Celgene Corp. merger will be impacted, but not to a material extent. BMS (down 12%) has seen some recent decline in its share price, which Morningstar attributes to concerns over its debt load following the merger. (Also see "With Celgene Acquisition Closed, Bristol Faces Major Milestones" - Scrip, 21 Nov, 2019.)

“We continue to believe that Bristol’s cash flows are very robust and that it will pay down debt to a pre-Celgene acquisition level over the next five years,” the note adds. “Additionally, more than half of Bristol’s debt is due after 2024, giving the firm plenty of room to repay its loans.”

Overall, Merck & Co. (down 11.59%) benefits from a “fairly entrenched” product portfolio that will protect it from pandemic-related damage, Morningstar said, but immuno-oncology blockbuster Keytruda likely faces a slower ramp-up in sales, particularly in Europe. (Also see "Merck: It’s Not Just Keytruda Driving Future Growth" - Scrip, 5 Feb, 2020.) Obtaining reimbursement for first-line combination therapy in non-small cell lung cancer in EU markets is a potential revenue-driver for Merck, but the pandemic portends slower going, the group predicted.

Morningstar cut its Keytruda revenue projection by nearly $1bn for 2020 (about 2% of the company’s total sales) due to the pandemic. “But we assume a faster rebound in 2021 following less impact from the coronavirus, which as a result, didn’t have an impact on our overall fair value,” the note states.

Hospital administered drugs, like Keytruda and AstraZeneca PLC’s PD-L1 inhibitor Imfinzi, could feel an impact, but since they are oncology products could provide a bit of a buffer due to the life-or-death nature of treatment for cancer.

Critical-care medicines offer also could be a buffer against the pandemic for AstraZeneca (down 11.37%), but those drugs also may be significantly affected by the outbreak’s effect on launches, Credit Suisse noted.

Morningstar concurred, saying new indications for the cardiometabolic drugs Brilinta and Farxiga will make less progress in terms of new patient starts due to a lack of in-person detailing, causing $350m in potential lost revenue. It also expects a nearly $1bn hit to 2020 revenues due to slower ramp-ups for AstraZeneca’s cancer drugs Lynparza, Imfinzi, Tagrisso and Enhertu. (Also see "AstraZeneca's Fredrickson On Its Cancer Ambitions " - In Vivo, 27 Jan, 2020.)

Companies Barely Affected Or Better Off

Roche (down less than 1%) may face sales downturns for its ophthalmology drug Lucentis and its cancer therapies, while launches of the neurology medicines satralizumab and risdiplam may be pushed back into 2021, according to Morningstar. (Also see "Roche Partnering Casts Wide Net To Expand Company’s Neuroscience Pipeline" - Scrip, 31 Jan, 2020.) But upside could come from off-label use of Actemra in COVID-19 patients; Roche has increased production of the drug, which normally is used to treat arthritis and cancer patients who suffer side effects from immunotherapy. (Also see "China Taps Roche Antibody, Green Lights Testing Kits For Coronavirus Arsenal" - Scrip, 5 Mar, 2020.)

In addition, Roche’s recently introduced lymphoma drug Polivy might see increased usage by offering an alternative to CAR-T therapies that necessitate longer in-patient hospital stays, Morningstar predicts, while Hemlibra might become more appealing to hemophilia patients because it can be administered at home.

Deutsche Bank analyst Parkes predicted in a 5 April note that Roche will report strong first quarter financials in line with the top range of its prior guidance. “Although we see incremental risk of logistical disruption to its portfolio of hospital-administered drugs (about 50% of all) from the COVID-19 pandemic, we are optimistic that there are multiple potential offsets to this, both directly from its SARS-CoV-2 test and Actemra sales,” he wrote.

Despite an increase in valuation during the first quarter, Lilly (up nearly 5%) faces a threat to growing its newer drugs in the detailing environment complicated by the pandemic. This might especially imperil diabetes franchise revenues, Morningstar noted. (Also see "Eli Lilly’s Trulicity’s Broad CV Label Spotlights GLP-1 Rivalry" - Scrip, 24 Feb, 2020.) “While we don’t expect major swings in Lilly’s diabetes franchise, we do expect a slower uptake of new patients for Trulicity and Jardiance, cutting close to 2% off of growth for 2020,” the report states.

Beyond diabetes, the migraine drug Emgality, cancer therapy Verzenio and immunology drug Taltz also could be threatened by the pandemic’s impact, with Morningstar projecting a 2% loss of expected growth for Lilly related to revenues from those three products. “Despite these drugs likely growing at a slower rate in 2020, Lilly holds a fairly defensive portfolio of drugs that are critically needed by patients and should not see too much further disruption,” the group added, noting that Lilly told investors in March that it does not expect to adjust its 2020 sales guidance.

(Editor's note: Mandy Jackson and Jessica Merrill provided research assistance for this article.)

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