Pharmaceutical stocks are often subject to whiplash trading, and it is evident now with sharp moves lower in names such as Sanofi (NASDAQ: SNY ), GSK (NYSE: GSK), and Teva Pharmaceuticals (NYSE: TEVA ).
Price fluctuations in that industry are often determined by the results of clinical trials or other studies. That’s exactly what happened in the case of Sanofi, which provides a lesson in the risks inherent in pharma stocks, even among well-established large companies.
Sanofi shares fell 5.87% Wednesday, closing at $42.18, on news that the company would end two studies of its potential breast cancer treatment. The studies were stopped after an interim analysis indicated that the drug was used with Pfizer’s (NYSE: PFE ) breast cancer drug Ibrance, “did not meet the prespecified threshold for continuation compared to the control arm,” according to a Sanofi news release.
“While we are disappointed by this result, our research will advance the scientific understanding of endocrine therapies in people with breast cancer,” Sanofi’s global head of research and development, John Reed, said in the release.
Does Sanofi still look promising?
Not all analysts believe that the stock is doomed. For example, Morningstar’s Damien Conover wrote, “[D]Carpet development is risky, and mistakes are common. We don’t view these pipeline setbacks as overly concerning, and we continue to believe that Sanofi will be able to develop the next generation of drugs to offset any patent losses, which is a key factor supporting the wide moat. Moreover, the limited patent losses over the next few years also provide time for Sanofi to replenish its late-stage pipeline with several early-stage drugs that look encouraging.”
MarketBeat analysts report that the consensus on Sanofi remains a “moderate buy.”
Wednesday’s gap-down came just a week after the stock fell 7.11% ahead of a test surrounding heartburn treatment Zantac. Sanofi, along with Pfizer and GSK and others, sold the drug for periods before the FDA ordered Zantac pulled from the market in April 2020.
The stock is down 16.44% in the last month and 12.94% year to date.
Sanofi shares opened lower on Thursday.
GSK shares were also hammered on the Zantac news. The stock fell 4.32% on August 10 and another 6.71% the next day.
Plaintiffs have filed thousands of lawsuits against drug companies that sold Zantac, claiming that various types of cancer resulted from taking the drug. In the first trial, scheduled to begin in Illinois next week, the plaintiff dropped his case, saying he was too ill to continue. However, he has the right to resubmit the case within the next year.
Lagging wider health sector
Like Sanofi, GSK was already reeling from the Zantac news. The shares are down 16.41% so far this year.
Both Sanofi and GSK are based outside the US, meaning they are not tracked by the S&P 500. But because the S&P large-cap healthcare sector is where they would otherwise be indexed, if they were domestic companies, it’s a valid comparison.
The healthcare sector is only down 4.94% so far this year. That much better sector performance is driven by major components such as UnitedHealth Group (NYSE: UNH) and Eli Lilly (NYSE: LLY)both of which boast strong 2022 gains.
Meanwhile, Israel-based Teva Pharmaceuticals, which at $11.54 billion is at the lower end of the large-cap classification, has fallen 10.63% this week but is still up 24.97% year-to-date.
Shares fell 9.25% on Wednesday, closing at $10.01, following the company’s voluntary recall of two lots of hypertension drug Matzim LA. Testing showed that the tablets did not dissolve properly.
Several companies involved in Zantac
Teva is also connected to the Zantac case. According to Bloomberg reports this week, Teva and other generic drug makers, including Perrigo (NYSE: PRGO ) and Dr. Reddy’s (NYSE: RDY ) agreed to a combined settlement totaling $500,000.
Perrigo and Dr. Reddy’s are both trading lower this week.
As you can see from all the recent news-driven declines in pharma stocks, the entire industry is particularly vulnerable to developments around clinical trials, lawsuits and other events. It’s always incumbent on investors to understand the industry risk inherent in any stock, but that’s especially true when it comes to pharmaceuticals, when big news can come at any time that can send stocks tumbling.