Pharmaceutical stocks are often subject to whiplash trading, and that 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 sector are often determined by the results of clinical trials or other studies. That’s exactly what happened in the case of Sanofi, which offers a lesson in the risks inherent in pharma stocks, even among established large-cap companies.
Sanofi shares fell 5.87% on Wednesday, closing at $42.18, following news that the company was closing two trials of potential breast cancer treatment. The studies were discontinued after an interim analysis showing that the drug, along with Pfizer (NYSE: PFE) breast cancer drug Ibrance, “did not meet the pre-specified limit for continuation compared to the control arm,” according to a Sanofi press release.
“While we are disappointed with this outcome, our research will advance the scientific understanding of endocrine therapies in people with breast cancer,” said Sanofi’s global head of research and development, John Reed, in the release.
Does Sanofi still look promising?
However, not all analysts believe the stock is doomed to fail. For example, Damien Conover of Morningstar wrote: “[D]carpet development is risky, and failures are common. We do not view these pipeline setbacks as overly concerning, and we continue to believe that Sanofi will be able to develop next-generation drugs to offset any patent losses, which is a key factor underpinning the broad moat. In addition, the limited patent losses in the coming years also give Sanofi time to fill its late-stage pipeline with several early-stage drugs that look encouraging.”
MarketBeat Analyst Reviews show that the consensus on Sanofi remains a “moderate buy”.
Wednesday’s gap-down came just a week after the stock plunged 7.11% ahead of a trial of Zantac’s heartburn treatment. Sanofi, along with Pfizer and GSK and others, sold the drug for a period before the FDA ordered Zantac to be taken off the market in April 2020.
The stock is down 16.44% last month and 12.94% year-to-date.
Sanofi stock opened lower on Thursday.
GSK shares were also hammered on the Zantac news. The stock fell 4.32% on Aug. 10 and another 6.71% the following day.
Plaintiffs have filed thousands of lawsuits against drug companies that sold Zantac, alleging that various cancers resulted from taking the medication. In the first trial, due to begin next week in Illinois, the plaintiff dropped his case because he was too ill to continue. However, he has the right to resubmit his case within the following year.
Lagging broader healthcare sector
Like Sanofi, GSK already tumbled before the Zantac news. Shares are down 16.41% since the start of the year.
Both Sanofi and GSK are based outside the US, which means they are not tracked by the S&P 500. However, because the S&P large-cap healthcare sector is where they would otherwise be indexed, if they were domestic companies, it is a valid comparison.
The healthcare sector has fallen by only 4.94% so far. That much better industry performance is driven by major components such as UnitedHealth Group (NYSE:UNH) and Eli Lilly (NYSE: LLY)both of which have strong gains in 2022.
Meanwhile, Israel-based Teva Pharmaceuticals, which is at the lower end of the large-cap ranking at $11.54 billion, lost 10.63% this week but still has a year-to-date gain of 24.97%.
Shares fell 9.25% on Wednesday, closing at $10.01, following the company’s voluntary recall of two batches of hypertension medication Matzim LA. Tests showed that the tablets did not dissolve well.
More companies involved in Zantac
Teva is also connected to the Zantac case. According to Bloomberg reports this week, Teva and other generic drug manufacturers, 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 sensitive to developments around clinical trials, lawsuits and other events. It’s always the duty of investors to understand the industry risks inherent in stocks, but that’s especially true when it comes to pharma, when big news could come at any time that could send your stock tumbling.