Covid vaccine offers big pharma stocks a shot in the arm

Share prices of drugmakers have languished this year, but Covid has given the sector a brighter image

Pharmaceutical stocks could bounce back sharply in the new year as they benefit from a double dose of political stability in the US and a Covid-19 vaccine rollout.

Share prices among some of the world’s biggest pharmaceutical players have struggled since the start of the year, with companies underperforming, particularly in the second half of 2020.

Uncertainty over the results of the US election dampened investor sentiment. Healthcare reform and drugs pricing are a hot topic of debate in the US and new legislation can have major implications for big pharma companies, which generate a significant share of their global revenues from the US market where prices are generally much higher than the rest of the world.

Meanwhile the pandemic has disrupted clinical trials and made it difficult to launch new drugs to market. Demand, in some cases, has also fallen sharply as treatments have been postponed and patients have steered clear of hospitals and GP surgeries. While this has not resulted in material falls in profit, it has muted investor confidence, particularly earlier in the year when the prospect of a vaccine was still far off.

In AstraZeneca’s third-quarter results, for instance, sales of some of its asthma medications fell sharply, by more than half in some cases. Swiss pharmaceutical giant Novartis reported similar problems in its third quarter, where sales were flat because patients were unwilling to go into hospital to receive treatment and disease diagnosis and treatment were being delayed.

The share prices of some of the major players over the past year are telling. As of midday on Nov 27, GSK's shares were down down by 22pc, Novartis 12pc, Roche 2.2pc, and Sanofi and Merck 5pc and 13pc respectively. Amgen's shares have fallen by 8pc, Bristol Myers Squibb 0.8pc, Gilead 8.6pc, Pfizer 1.5pc and Johnson & Johnson 1.5pc. 

AstraZeneca is broadly flat on the year, and has lost 7pc since its vaccine announcement at the start of last week, with the company facing questions about its results data.

There are some exceptions: Novo Nordisk is up 6.8pc, while Abbvie and Eli Lilly are up 16pc and 10pc respectively.

But there is reason to believe next year will be a boom for big pharma. The prospect of a Covid vaccine returning business to normal became a very real prospect three weeks ago when Pfizer was the first company to announce successful trial data. The pandemic has also highlighted the importance of the life sciences sector and given a reputational boost to an industry that often only made headlines around high prices and bribery scandals.

“Investment made into developing a vaccine can buy the industry political backing and gives it a better image. I think it certainly is a reputation win for pharma," says one analyst.

"This will be a boom for pharma sector earnings next year particularly for those companies launching new drugs as they haven't been able to promote them or launch them very well this year."

An industry executive agrees, adding: "What Covid has done in some respects is brought to the front page that technology matters, manufacturing of complex things matter, so the world of investors are now attuned to the need for innovation in healthcare.

“You can’t really quantify it, we have always had a high level of interest in our business, but I think in some ways this has confirmed in the eyes of shareholders what they have invested for, we have been speaking to our investors about things like 'unmet need', 'complex manufacturing', and 'innovation' for years and the pandemic and importance of science has validated our viewpoint.”