BUSINESS
CHEMICAL, DRUG STOCKS FALL, BIOTECHS JUMP Plant outages, economic worries, drug safety, and earnings affected stocks in the third quarter WILLIAM J. STORCK, C&EN NORTHEAST NEWS BUREAU
H
URRICANES, HIGH OIL AND NATURAL
gas prices, and broad-based worry about the U.S. economy hurt chemical company stock prices in the third quarter. Pharmaceutical stocks also suffered, but biopharmaceutical shares rose from the end of the second quarter. The decline in chemical stock prices follows a similar slide in the second quarter, but the downturn in pharmaceuticals is new. Biotech stock prices, overall, had been up in the second quarter. C&EN's index of 25 chemical company stocks dropped 3.4% to 186.4 (all indexes are 1992 = 100) by the end of the July-toSeptember period. Following the secondquarter decline and a slight increase in the first period, the chemical index at the end of the third quarter was down 9.4% from the end of 2004. In other areas, C&ENPs index of nine major drug companies finished the quarter at 351.4, down 3.1% from the end of the second quarter and off 2.0% from the end of 2004. The index for 15 biotechnology companies, however, soared to 528.9,18.6% above the end of June and up 13.0% from the end of December of last year. The biotech index by far outperformed two of the major overall stock indexes in the third quarter, while both pharmaceuticals and chemicals lagged behind the indicators. The Dowjones industrial average rose 2.9% from the second quarter but fell 2.0% from the end of last year, while the NASDAQ increased 4.6% quarter-to-quarter but was offl.l%fromDec.31.
THE CHEMICAL INDEX hit its quarterly high of 206.2, up 6.9% from the end of June, late in July. It then began to drift downward through August as energy and feedstock costs began their robust rise. By the time Hurricane Katrina hit the Gulf Coast, the index had lost all of its gains. After the hurricane, which caused outages at plants and disruptions in the transportation system, companies and securities analysts lowered earnings forecasts for the industry. These factors drove the index down further to a 18
C & E N / OCTOBER 1 7, 2005
low on Sept. 21 of 180.1. It recovered somewhat at the end of the month to settle 9.6% below its quarterly high.
The damage was widespread among the 25 companies, with 17 showing earnings declines from the end of the second quarter; seven were higher and one—Cabot—was unchanged. Nineteen of the firms ended the period with a share price lower than was seen the last trading day of 2004. Five of the companies showed quarterly double-digit declines in their share prices. The largest decline was at Georgia Gulf, where the stock price fell 22.4% from the end of the second quarter to $24.08 per share. The decline came on a 657% fall in earnings reported during the quarter. Among the reasons for the earnings decline,
CHEMICAL STOCKS Declines in share prices were common among 25 firms THIRD-QUARTER STOCK PRICE3 HIGH
LOW
CHANGE FROM CHANGE SECONDFROM 2004 QUARTER CLOSE CLOSE
CLOSE
-4.9% -2.6 -19.2 -14.7 -30.0
18.3 18.1 30.6 17.1 28.3
-15.6 -15.8 -20.1 -18.6 -9.0
13.8 10.2 15.8
1.9
-21.0 18.5
-8.8 -22.4 -13.6
9.0
31.6 13.9 22.7
-51.6 -17.7
14.1
$61.23 38.36 26.40 36.20 20.96
$54.49 34.65 22.90 31.32 18.46
$55.14 37.70 23.25 33.01 18.96
Cytec Industries Dow Chemical DuPont Eastman Chemical Enqelhard
48.50 49.14 44.30 58.30 29.78
39.52 40.63 38.04 44.70 27.47
43.38 41.67 39.17 46.97 27.91
Ferro FMC Corp. H.B. Fuller Georgia Gulf Hercules
23.12 62.60 35.87 36.22 14.69
17.01 55.33 27.90 23.11 12.05
18.32 57.22 31.08 24.08 12.22
Huntsman Lubrizol Nalco PPG Industries PolyOne
24.02 44.00 21.80 66.40 7.58
16.74 39.47 15.89 57.94 5.86
19.55 43.33 16.87 59.19 6.06
-14.1 -5.7 -8.5
Praxair Rohm and Haas Siqma-Aldrich Stepan Terra Industries
51.51 47.71 64.96 26.56 8.49
46.00 39.91 55.99 22.37 6.25
47.93 41.13 64.06 25.06 6.65
2.9
8.6
-11.2 14.3 13.4 -2.4
-7.0
C&EN chemical stock index* (1992 = 100)
206.2
180.1
186.4
-3.4%
-9.4%
10705.6 10270.7 10568.7
2.9%
-2.0%
Air Products Albemarle Arch Cabot Cambrex
Dow Jones industrial average
a Adjusted for stock splits, b As of Sept. 30,2005. c From beginning of trading on Feb. 14,2005. d Based on the average stock price for the 25 companies listed. na = not available.
PRICE/ EARNINGS RATI0b
-8.6%
3.4 -6.9
0.0 -0.5
9.0 -6.4 -8.9 -14.8 -2.2 -7.8
-20.2 C 17.6 -13.6 -13.2 -33.1
-3.6
3.1
160
na 14.6
na 12.5
8.3
6.0 2.9 -25.1
8.6
High • Close Low
r^trr+n
+T+
200 180
7.7
20.8 15.3 19.8 21.4
C&EN chemical index, 1992 = 100 240 220
9.4 14.5
^+
S O N D J l _ 2004 —I I
F M A M J J A S 2005 —
WWW.CEN-0NLINE.ORG
according to the company, were plant outages and lower sale prices on many products. The stock price at the two largest companies in the chemical index, Dow Chemical and DuPont, declined. DoVs stock fell 6.4% to $41.67 per share while DuPont's share price fell 8.9% to $39.17. Of the seven chemical companies that showed increases in the third quarter, the largest was at Sigma-Aldrich, maker of fine chemicals and seller oflaboratory chemicals. The company's stock price rose 14.3% to $64.06 per share. Sigma-Aldrich was closely followed by surfactant maker Stepan, which had a 13.4% increase in its stock price to $25.06 per share. This represents a recovery for the firmfromdeclines in both the first and second quarters of this year. The remaining five companies that showed increases were Albemarle, up 3.4% to $37.70 per share; Cytec Industries, up 9.0% to $43.38 per share; FMC Corp., up 1.9% to $57.22 per share; Lubrizol, up 3.1% to $43.33 per share; and Praxair, up 2.9% to $47.93 per share. Like the chemical companies, the pharmaceutical firms mainly showed declines in their stock prices, driving the drug index down 3.1%fromthe end of June. The index at the end of the third quarter also was down 4.4%fromits quarterly high of 367.5, but up only 0.4%fromits low of 351.4 during the period. And just as at the chemical companies, declines outnumbered gains for the nine drug companies surveyed, with six having lower stock prices at the end of the quarter compared with the end of the second quarter. THE LARGEST DECLINES seemed to come at companies withregulatoryand legal problems. Abbott Laboratories, stock price fell 13.5% to $42.40 per share, with much of the decline coming after a Food & Drug Administration panel's refusal to recommend Xinlay, the company's oral drug for prostate cancer. Merck, which is in court over the safety of the pain medication Vioxx, saw its stock drop 11.7% to $27.21 per share during the quarter. And Pfizer, with legal problems over its erectile disfunction drug Viagra, had a decline of 9.5% to $24.97. On the plus side, Wall Street seems to be betting that Schering-Plough's efforts to reinvent itself are having an effect. The company's stock rose 10.4% during the quarter to $21.05 per share. It was the biotechnology companies, however, that stood out in the quarter with the 18.6% increase in the index. Only one of WWW.CEN-0NLINE.ORG
DRUG AND BIOTECH STOCKS Biotech companies scored big in the third quarter THIRD-QUARTER STOCK PRICE* HIGH
LOW
CLOSE
MAJOR PHARMACEUTICAL COMPANIES $49.99 $41.94 $42.40 Abbott Laboratories 40.95 37.08 39.87 Baxter International 25.27 23.97 24.06 Bristol-Myers Squibb 57.26 52.52 53.52 Eli Lilly & Co. Johnson & Johnson 65.18 61.94 63.28 Merck Pfizer Schering-Plough Wyeth C&EN pharmaceutical indexc (1992 = 100) Dow Jones industrial average
CHANGE FROM CHANGE SECONDFROM 2004 QUARTER CLOSE CLOSE
-13.5% 7.5 -3.7 -3.9 -2.6
-9.1% 15.4 -6.1 -5.7 -0.2
31.95 27.60 22.-45 46.51
27.21 24.80 18.48 44.00
27.21 24.97 21.05 46.27
367.5
350.0
351.4
-3.1%
-2.0%
10705.6 10270.7 10568.7
2.9%
-2.0%
-11.7 -9.5 10.4 4.0
-15.3 -7.1 0.8 8.6
BIOPHARMACEUTICAL AND DRUG DISCOVERY COMPANIES 86.17 60.86 79.67 31.8 Amgen 42.80 34.08 39.48 14.6 Bioqen Idee 13.00 10.78 12.13 10.6 Cèlera Genomics 46.98 38.47 46.42 Cephalon 16.6 44.34 34.96 43.65 25.1 Chiron
PRICE/ EARNINGS RATIO"
18.0 20.3 14.8 19.2 18.9 10.5 11.7 100.2 15.8
24.2 -40.7 -11.8 -8.8 31.0
28.3 27.4 def 16.3 128.4
Cytogen Genentech Genzyme Gilead Sciences Icos
5.41 94.74 75.20 48.76 27.77
3.68 79.86 59.70 40.99 21.14
4.04 84.21 71.64 48.76 27.62
-22.8 4.9 19.2 10.8 30.5
-64.9 54.7 23.4 39.4 -2.3
def 81.0 34.3 39.0 def
Medlmmune Millennium Pharmaceuticals Protein Desiqn Labs Vertex Pharmaceuticals Xoma C&EN biopharmaceutical index d (1992 = 100) NASDAQ
33.65 11.09 29.92 22.35 1.94
26.79 9.14 20.12 15.53 1.41
33.65 9.33 28.00 22.35 1.76
25.9 0.6 38.5 32.6 4.8
24.1 -23.1 35.5 111.4 -32.1
129.4 def def def def
534.2 447.7 528.9 2218.2 2057.4 2151.7
a Adjusted for stock splits, b As of Sept. 30,2005. c Based on the average stock price for the nine drug companies listed, d Based on the average stock price for the 15 biopharmaceutical companies listed. def • deficit in previous four quarters.
18.6% 4.6%
13.0% -1.1%
C&EN biopharmaceutical index, 1992 = 100 550 500 450
^k
Lfc-fc-
400
| High h Close 1 Low
350 S O N D J -2004 _J
the 15 companies surveyed—Cytogen—had a decline for the quarter. Of the remaining 14 firms, 11 had double-digit increases, rangingfrom10.6% at Cèlera Genomics to 38.5% at Protein Design Laboratories. By and large, second-quarter earnings drove third-quarter biotech stock prices. The most interesting instance of this was at Amgen, the largest biotech company. When the firm's second-quarter earnings were announced, beating analysts' estimates by 15 cents per share, its share price jumped $10.65, or 15.1% onJury 20 alone. Amgen's
F M A M J J A S - 2005 -
stock continued to climb until mid-September when it hit its quarterly high of $86.17 per share. It then trailed off slightly to finish the quarter at $79.67,31.8% above where it ended the second quarter. The pattern seen in the third quarter for chemicals and pharmaceuticals continued through the first week of trading in the fourth quarter. The chemical indexfell2.6% from the end of September to 180.4, while the pharmaceutical index slipped 1.9% to 344.3. The biotech index, though, showed the largest decline, dropping 3.4% to 511.1. • C & E N / OCTOBER 17. 2005
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