Big Pharma Stocks Plunge In 2015?



By Motley Fool Staff
November 24, 2014

There are several things that have the potential to give pharmaceutical companies problems. New drugs could have trouble getting approved, competition from generics can erode profits, and research and development costs could rise.

With this in mind, we asked three of our top health care analysts which big pharma stocks could have a tough 2015, and here is what they had to say.

George Budwell: Bristol-Myers Squibb Co. (NYSE: BMY ) looks, to me, like a top health care name that could run into serious trouble next year. Like its peers, Bristol has seen its revenue stream dip in the wake of the patent cliff. Per the third quarter, for example, the company reported a 4% drop in revenue year over year. Even so, its stock price has still risen by 12% year to date. This odd combination has resulted in Bristol’s stock trading well above the sector average in terms of its price-to-earnings ratio, i.e., 36 vs. 24.

The large premium built into Bristol’s share price appears to reflect the optimism surrounding its new cancer treatment Opdivo, currently under regulatory review for both advanced melanoma and nonsmall cell lung cancer, or NSCLC. Although I think Opdivo stands a decent chance at garnering both regulatory approvals, the market may have overestimated its commercial potential, at least in the short term, for two reasons. First, Opdivo has already lost first-mover advantage to Merck’s (NYSE: MRK ) competing drug, Keytruda, for advanced melanoma. Secondly, the drug’s first shot at an NSCLC approval would come as a third-line treatment. So the risk of this drug failing to live up to expectations, in the near term, looks awfully high, in my opinion.

Cheryl Swanson: Pfizer (NYSE: PFE ) could be in for some major pain in 2015. Specifically, generic competition for Pfizer’s blockbuster pain drug Celebrex is set to begin next month, dealing a costly blow to the company’s 2015 drug sales. And then there’s the Viagra patent, due to expire in the U.S. in 2017, with the little blue pill already not nearly as profitable as it once was for the company.

But what about palbociclib, Pfizer’s much-touted breast-cancer drug? According to The Wall Street Journal, analysts have predicted peak sales of up $10 billion a year for this compound, and that could certainly change the game for Pfizer.

While palbociclib’s approval is under priority review and seems likely, I believe the drug is going to be a much tougher sell than many anticipate. If you look at the data, while palbociclib doubled progression-free survival time, the therapy has yet to demonstrate a statistically significant extension to patient’s lives. In clinical trial parlance, this is considered a “secondary” endpoint, but as a former cancer patient, I can attest it’s what matters most in real life. In fact, a drug that doesn’t provide hard evidence of actually prolonging life is just another option, and often not a compelling one, to both cancer patients and prescribing doctors.

That could change when more data comes out. Hopefully, it will. But it’s also true that Novartis (NYSE: NVS ) and Eli Lilly (NYSE: LLY ) are hot on Pfizer’s heels with their own CDK 4/6 inhibitors.

Basically, Pfizer will enter 2015 exactly where it has been for far too long — in a spot where the pressure will be on to find some way to offset its patent cliff. And right now, that’s anything but a sure thing.

Leo Sun: Eli Lilly has been in stuck in a rut after generic competition for Cymbalta, Zyprexa, and Evista weighed down its top line. Humalog, its mealtime insulin, also lost patent protection in June, although a generic version hasn’t been approved yet. Those four products accounted for 43% of Lilly’s top line in fiscal 2013.

Lilly hopes that three products — the cancer treatment Cyramza, and the diabetes drugs empagliflozin and dulaglutide — will revive its top line growth. But the prospects for all three drugs looks dim. Cyramza was approved by the FDA for stomach cancer in April, but trials for breast and liver cancer trials fell short of expectations. Empagliflozin, a SGLT2 inhibitor which helps patients excrete more glucose through urine, was approved by the FDA in August, but it will go up against two entrenched competitors — J&J’s Invokana and AstraZeneca’s Farxiga/Forxiga. Dulaglutide, a once-weekly diabetes drug which boosts the release of insulin, was approved in September, but it will need to compete against similar drugs like Novo Nordisk’s Victoza and AstraZeneca’s Byetta/Bydureon.

In other words, Lilly’s drugs are arriving too late to effectively compete. Moreover, Lilly’s trailing P/E of 27 also indicates that it is trading at a hefty premium to cheaper industry peers like Pfizer and GlaxoSmithKline.


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John Macey

I was born, and principally educated, in the fields of biochemistry, and business management in the northeastern USA. However, my world-wide professional career has greatly expanded upon that US base to involve the many different segments of the Biotech / Life Science fields globally. – I have been dressed as a surgeon to view many, many surgical proceedures - The major players in the health care fields that I have worked for include: Johnson & Johnson, DuPont, Abbott Laboratories, and F. Hoffmann-La Roche. – Positions have included selling nuclear materials for both in-vivo & in-vitro (radio-pharmaceutical & radio-immunoassay) medical diagnostic purposes, in the four countries in Scandinavia, based south of Stockholm, to managing Ph. Ds at a global Swiss headquarters location. – At one time I held a position of Strategy Manager for Europe, Middle-East & Africa (EME&A) for a Chicago based company, but living in Germany. – I do speak fluent colloquial German. – In addition to having lived in multiple European countries, my professional career took me to Asia for well over a decade. There I had management control of Oceania, the Pacific Rim, Northern Asia, Japan, out to India. – Occasionally, management assignments have taken me to all of Latin America, and most of South America. – I am extremely culturally aware, a skilled negotiator, and a seasoned manager of men and science. – My one abiding passion has always been computing, data, and analysis. As such, my main computer operating system is Linux, and open-source computer applications. – I do also run Microsoft 7, and Mac OS X (all 3 operating systems on the same H-P Ultrabook). I hope you enjoy your time on the Blog, and should you have any comments / feedback please feel free to email me @ jjmacey@jjmacey.net, or visit my Linux Web Site @ www.jjmacey.net (always evolving) – John J. Macey – AKA Adler, which in German means Eagle – Wildwood, New Jersey - Together, we can expand your global markets - with our partnerships. The partnerships are global utlizing multiple Law, Regulatory, Seasoned Management, Employment, M&A and buidlers of Business. Contact use.