Firms' new drugs haven't got quick fix for sceptical investors
Product pipelines have never been more critical in the $400-billion-a-year global drug industry, which faces mounting pressure on patents and prices. Yet many research labs are coming up dry. Last year, the number of new drugs approved by the US Food and Drug Administration slumped to just 26 from 53 in 1996, despite a near doubling in R&D spending to $32 billion.
Anglo-Swedish drugmaker AstraZeneca Plc, first off the blocks with its business update on October 2, has been one of the luckier ones and is expected to focus heavily on take-up of its recently launched cholesterol fighter Crestor.
Switzerland's Novartis AG and Britain's GlaxoSmithKline Plc, following on November 19 and December 3, have less to shout about in terms of new launches and will have to work harder to prove the value of R&D projects.
Past history shows stocks tend to be buoyant ahead of such events but move relatively little on the day, according to Lehman Brothers.
Recent outperformance by AstraZeneca and Roche Holding AG both of which are rolling out new drugs shows investors have been willing to look through lower near-term earnings and focus on prospective growth.
But Marc Booty, a pharmaceuticals analyst at Commerzbank, thinks this makes it harder for such stars to notch further gains.
"The lower the rating on the stock, the higher the potential for surprise on the upside. The higher the rating, the more they will need to deliver to maintain parity," he said.
With AstraZeneca shares trading at 21.7 times consensus 2004 earnings, based on Reuters Research data, the company cannot afford to disappoint investors. Novartis, by contrast, fetches 16.2 and GSK just 14.4 times earnings. AstraZeneca, however, may have little scope to give substantial news on products behind Crestor, since key clinical data on anti-coagulant Exanta its next potential blockbuster is set for release at the American Heart Association meeting in November.
Novartis, meanwhile, has had a plank of its research story damaged with the news this week that pain drug prexige, a potential blockbuster, will not be ready for launch in the United States before 2005, pending more clinical studies. That could leave investor attention focused on its cancer franchise, including possible new uses for Glivec and prospects for PTK787, a compound developed with Schering AG that is designed to starve tumours of blood supply.
GlaxoSmithKline, holding its first R&D presentation day in nearly three years, is arguably the wild card in the pack.
"Glaxo is the one where potentially you have got the most upside," said Martin Hall of HSBC.
Still, much of the clinical news from Europe's biggest drugmaker will still be early-stage.
