2023 was a challenging year for most big pharma companies, except for Eli Lilly, which stood out among the rest. This week, however, presents an opportunity for redemption as almost every major player in the industry releases their fourth-quarter earnings reports.
The timing of these earnings announcements couldn’t be more precarious for the sector. Big pharma companies are grappling with impending patent expirations and a new Medicare price-negotiation program that threatens to slash the revenue generated by some of their best-selling products.
Adding to the pressure, many of these companies have recently divested ancillary businesses, such as consumer-health and generic-drug divisions, to focus on their core biopharma operations. These divisions had previously provided some earnings stability during challenging times.
Consequently, this week serves as a critical moment for the entire industry to prove itself by setting expectations for 2024 and presenting analysts with their projections for the upcoming year.
Late in 2023, there was a flurry of acquisitions by big pharma companies, with Pfizer’s $43 billion deal to acquire cancer drugmaker Seagen being one of the notable transactions. Investors will be closely monitoring these earnings reports for insights into potential future mergers and acquisitions and seeking reassurance amidst anticipated revenue declines.
The week’s schedule is jam-packed with notable reports. Pfizer will announce its earnings on Tuesday, followed by Novo Nordisk, Novartis, and GSK on Wednesday. Sanofi and Merck will release their earnings on Thursday, while Bristol Myers Squibb will wrap up the week with its report on Friday.
Johnson & Johnson, which reported its results last week, met expectations without raising any concerns about the upcoming earnings season. However, their shares experienced a 1.6% decline on the day of the announcement.
The Changing Landscape of the Pharmaceutical Industry
In 2023, the pharmaceutical industry witnessed a clear divide between companies that offered sought-after obesity treatments and those that didn’t. Investors clamored for companies like Lilly, the manufacturer of the popular anti-obesity injection Zepbound, which saw its shares surge by 59.3%. Similarly, Novo Nordisk, the maker of competing medicine Wegovy, experienced a gain of 52.9%.
However, other pharmaceutical giants were not as fortunate. Pfizer shares plummeted by 43.8%, while Bristol Myers Squibb saw a drop of 28.7%. Some companies managed to minimize their losses, with Merck’s stock slipping by only 1.7%. On the positive side of the spectrum, Sanofi and GSK shares recorded gains of 2.7% and 5.7%, respectively. Novartis came closest to matching the broader market’s performance, with shares climbing by 17.6%.
This underperformance has caused larger pharmaceutical companies to question their identity and strategic direction. When analyzing the historical data, it becomes clear that no large-cap pharma stocks have outperformed the S&P 500 over extended periods of five, ten, fifteen, or even twenty years – with the exception of Lilly and Novo Nordisk, which have consistently bested the index.
The disappointing performance of the industry in 2023 serves as a wake-up call, highlighting the fact that big pharma has not been a favorable long-term investment. It demonstrates that investors comprehend the challenges facing the industry and are not inclined to support companies unless they are seen as frontrunners in their respective fields.
Executives are well aware that they face an uphill battle in winning back investor confidence. It is now their responsibility to present compelling strategies and make a persuasive case for investment. This week will prove crucial for them.