STOCKS HIT HARD IN THIRD QUARTER
Chemical, pharmaceutical, and biotechnology company stocks continued to decline
Trends--corporate scandals, poor earnings, and a lack of confidence in the economy--that began battering stock markets in the second quarter continued unabated in the third. The Dow Jones industrial average hit a new five-year low while the technology-heavy NASDAQ was reminiscent of 1997 levels. Stocks for chemical, drug, and biopharmaceutical producers were not immune, but in some cases they did better than the broader markets.
Chemical stocks continued their downward slide in the third quarter. C&EN's chemical stock index, calculated from the daily average stock prices of 25 leading companies, fell 17.5% from the last trading day of the second quarter to end the July-to-September period at 133 (1992 = 100).
This percentage decline almost matched the 17.9% drop in the Dow Jones average during the same period. However, the chemical index ended the quarter just 14.0% below where it closed out 2001, while the Dow Jones, in contrast, closed down 24.2%. The difference came from better performance for chemicals in the first half of the year when, despite a pullback in the second quarter, the chemical index rose 4.2% from the end of 2001, while the Dow Jones fell 7.8%.
The C&EN index actually hit its quarterly high point on July 1, the first day of the third quarter, closing at 160. The Dow Jones reached its high of 9380 a few days later. But unlike the Dow Jones, which did not make its low close of 7592 until the last trading day of the quarter, the C&EN index hit its low of 130 early in the quarter--on July 23. While it had its usual ups and downs from then on, the chemical index finally closed the quarter just 2.3% above its bottom.
When the quarter ended, not one of the 25 chemical stocks showed a gain over the end of the second quarter. The declines ranged from a 3.6% drop at IMC Global to $12.05 per share to a dive of 46.7% at W.R. Grace to $1.60. But when a company has a high for the quarter of just $3.05 per share and is beset by asbestos liabilities and bankruptcy, as is Grace, it doesn't take much to produce big swings in the stock price.
The two largest chemical companies, Dow Chemical and DuPont, closed the quarter with declines of 20.6% and 18.8%, respectively. And, in the process, Dow lost some $6.5 billion in market capitalization, while DuPont lost $8.3 billion of its market value.
EVEN THOUGH pharmaceutical and biopharmaceutical company stocks fell on average in the third quarter, it was a relatively bright period for the sectors compared with previous quarters, because drug-related stocks managed to outperform the broader NASDAQ and Dow Jones indexes. However, the sectors are not doing as well on a year-to-date basis.
Stocks for 10 leading U.S. drug producers fell a combined 10.7% in the quarter, with C&EN's index closing at 342 (1992 = 100). The close was just about midway between the quarterly low of 304 in late July and the high of 394 reached in late August. But for the first nine months of 2002, drug stocks dropped 30.9%.
Stock prices for Abbott Laboratories, Johnson & Johnson, and Pharmacia all rose between about 4 and 7% in the third quarter and, with the exception of Abbott, showed much smaller declines than other stocks for the year so far. Pharmacia's stock was boosted by becoming Pfizer's takeover target (C&EN, July 22, page 9) and by spinning off Monsanto.
The rebounds for Johnson & Johnson and Abbott came despite manufacturing and regulatory issues early in the quarter. In contrast, Baxter's stock decline came mostly in the last days of the quarter when safety concerns arose around its dialysis machines.
Bristol-Myers Squibb's stock performance wasn't so bad for the quarter, down just 7.4%. However, over nine months the company's stock has been the biggest drug industry loser, having fallen 53.3%. The company continues to be plagued by its ill-fated alliance with ImClone Systems and dismal sales and earnings.
Negative results of hormone replacement studies contributed to Wyeth's 37.9% decline in the quarter. With hormone product sales slowing, Wyeth cut its earnings outlook just days before the end of the quarter, and its share price fell precipitously.
BIOPHARMACEUTICAL stocks fell a combined 7.4%, with C&EN's index closing the quarter at 261 (1992 = 100). This decline was much less than the 20.0% plunge posted by the NASDAQ market, on which most technology and small company stocks trade. Individual company stock gains or losses varied widely and depended largely on company events.
Amgen, for example, was one of the better ones after getting regulatory approval for its anemia drug Aranesp. Similarly, good product news during the quarter helped stock prices for Gilead Sciences, Icos, Vertex Pharmaceuticals, and Xoma. Bad news--such as approval delays, clinical setbacks, and competition--was a factor in sliding prices at Biogen and MedImmune.
Most biopharmaceutical stocks had taken large tumbles in the second quarter, and the third-quarter gains were not enough to bring any of the companies' stocks out of negative territory for the year so far. For the nine-month period, biotech stocks were down 44.7% compared with 39.9% for the overall NASDAQ.
Since the third quarter's end, biopharmaceutical and drug company stocks seem to be slowly coming out of the doldrums, and C&EN's indexes have risen a bit. For the 25 chemical companies, the beginning of the fourth quarter has been volatile with a 5.6% gain in the index on the first day of October, followed by a 12% decline over the next six days to a 2002 low of 123. By press time, however, the chemical index had recovered to the Oct. 1 level.
Prices plunge in third quarter for all surveyed companies
DRUG AND BIOTECH STOCKS
Stock prices are down, but they outperform broader markets in the quarter