Major pharmaceutical companies have insisted for weeks, if not months, that the passage of health care reform would hurt their bottom lines. During an appearance at Bloomberg's Washington Summit last week, David Brennan, head of pharma giant AstraZeneca, said that it was "not obvious" to him "that there is an upside" to health care reform.
Ken Johnson, a senior vice president of the Pharmaceutical Research and Manufacturers of America, penned an oped for Politico in November making the same case. He saw no "material upside" for his industry in coverage expansions, he wrote. "If health care reform really has the potential to be a windfall for our industry, street analysts would be shouting, 'Buy.' That's simply not happening."
In actuality, however, it is happening. Some of the biggest names in the pharmaceutical industry are, and have been, receiving buy ratings from major agencies throughout the past few months. In fact, as the prospects for reform have progressed, the vast majority of "street analysts" have only improved their outlooks. For example:
Bristol Meyers Squibb has had a "buy" rating for the past 120 days, according to an analyst consensus complied by AOL Money & Finance. On September 9, 2009, Wells Fargo pegged Bristol Myers Squibb stock as one likely to "outperform."
Abbot Labs, likewise, has had a buy rating for the past 120 days according to an analyst consensus. On November 11, 2009, Wedbush Morgan gave Abbot an outperform rating. On September 29, UBS put Abbot as a buy -- an improvement from the neutral rating it received from Credit Suisse over the summer.
Amgen also has had a buy rating for the past 120 days according to an analyst consensus. On November 2, 2009, Credit Suisse put Amgen at an outperform rating. On October 12, UBS changed its ratings from neutral to buy.
Johnson & Johnson has had a buy rating for the past 120 days, though most ratings agencies have not updated their neutral ratings from the summer.
Merck has had a buy rating for the past 120 days. On November 9, Leerink Swann changed its ratings from market performance to outperform. On October 19, Barclays Capital put Merck stock at overweight -- i.e. a better value for money than other stocks.
Pfizer has had a buy rating for the past 120 days. In October two ratings agencies (Barclays Capital and JP Morgan) pegged the stock price as overweight.
Sanofi-Aventis, meanwhile, is currently rated as a buy stock. Deutsche Securities changed its rating to buy on November 15; UBS changed it from sell to neutral on October 14, and JP Morgan changed it from neutral to overweight in late August.
Novartis is currently rated as a buy stock. Deutsche Securities changed its ratings to buy on November 15 though Barclays Capital listed it as underweight three days earlier. Still there is a bullish consensus on the company's stock. Citigroup changed its rating from hold to buy in late September as did Jefferies & Co.
Not every pharmaceutical industry stock is being touted by analysts. But for those stocks they aren't advising people to buy, they are basically neutral about their performance.
Eli Lilly, for instance, has been rated a hold stock for the past four months though recent recommendations suggest that analysts see profits on the horizon. While Wells Fargo pegs the stock as achieving market performance, Caris & Company gave it an above average rating on August 19.
AstraZeneca is currently listed as a hold, though recently JP Morgan switched its rating from neutral to underweight and Collins Stewart sent it from hold to sell in late September.
GlaxoSmithKline, finally, has not been updated recently and is currently listed as a hold by several agencies
Stock ratings are, of course, not entirely reliable. And there are a slew of factors that seem likely to contribute to the optimistic outlook for the pharmaceutical business. The economy, for starters, is improving the fortunes of the industry as a whole, as well as a better generics market and what an industry analyst described as "the changing mix of innovative and mature products" available to consumers.
But even insider data, compiled by the firm IMS, makes the case that health care reform has contributed to a more profitable landscape. Specifically, Big Pharma stands to benefit from the deal it cut with the White House, in which the industry would contribute $80 billion over ten years to reform, in exchange for a commitment that the government would not use its purchasing power to lower prescription drug prices.
UPDATE: Reached by email Ken Johnson responds:
[M]y statement was made in the context of health care reform. While certain companies will outperform expectations, the fact remains that since the beginning of 2004, the AMEX pharmaceutical index has declined 16.1% while the Dow has decreased 7.2% and the S&P has dropped 5.8% (see attached).
Second, this is a small sampling of the 350-400 pharmaceutical and biotechnology companies listed on the stock exchange today. All of the financial indicators around venture capital and the ability to raise other funds are poor and 22 companies have already been delisted from NASDAQ. Some experts predict that the number of publicly-traded American biotechnology companies could decline to 250 by the end of 2009. As in any sector, there are winners and there are losers.
Third, financial results for nearly a dozen of our companies show zero revenue growth in the third quarter and -3% year to date.
And finally, if you look at aggregate data in Credit Suisse's recent report, you'll see only 2% revenue growth for our industry over the next five years.