Big Pharma: Bad time to botch a blockbuster
Glaxo, AstraZeneca stocks suffer on bad news over potential big-selling drugs.
By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Hey Big Pharma, listen up: this is NOT the time to be dropping the ball on a blockbuster.

Investors are showing no mercy to drugmakers and biotechs who suffer setbacks with billion-dollar blockbusters or disappointing results with experimental drugs, and stockholders are quick to jettison shares.

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"It seems like they're punishing too much," said Gbola Amusa, analyst for Sanford C. Bernstein.

AstraZeneca's (down $2.28 to $59.10, Charts) stock price has tumbled more than 11 percent over the last two sessions after the drugmaker said it was discontinuing studies of NXY-059, an experimental stroke treatment that some analysts believed had blockbuster potential. But the British drugmaker said that in clinical trials the drug was not effective in reducing the damage caused by strokes.

"We're disappointed not only for ourselves, but for the patients out there who perhaps would have benefited from this particular type of treatment, in an area of healthcare where there is very little out there" said AstraZeneca spokesman Steve Brown.

But Amusa, the Bernstein analyst, said the reaction of stockholders was disproportionate to the news.

"AstraZeneca stock is down (about) 12 percent in two days for a drug that would have been worth 3 percent of sales," said Amusa.

AstraZeneca's report seemed worse when coupled with the British drugmaker GlaxoSmithKline (down $1.60 to $53.25, Charts), which also announced a drug setback on Thursday, the same day that both companies announced third-quarter earnings.

Glaxo had originally planned to file Cervarix, its experimental cervical cancer vaccine, for Food and Drug Administration review this year, but said the filing would have to wait until April.

Cervarix would compete with Merck's (down $0.12 to $46.09, Charts) Gardasil, approved by the FDA in June. Analysts see both of these vaccines as potential blockbusters, so even a few months on the market can mean hundreds of millions of dollars in potential revenue. A blockbuster is a drug with $1 billion or more in annual sales.

Glaxo spokeswoman Patty Seif said the Cervarix trial was inconclusive so far, and that more time would be needed to see if the vaccine will prevent cervical cancer.

Since Glaxo announced its Cervarix delay, the company's stock has slumped about 5 percent.

In the minds of investors, two British drugmakers announcing problems with potential blockbusters on the same day triggered "more severe stock price declines than what otherwise would have happened," said Bernstein analyst Amusa. "Unrelated items, if they're disclosed at the same time, people will make into a trend, even when a trend doesn't exist."

Les Funtleyder, analyst for Miller Tabak, said the "cumulative effect was worse" than it would have been if AstraZeneca and Glaxo had made their announcements further apart.

Add that to the bad news from Bristol-Myers Squibb (up $0.11 to $24.64, Charts), the New York-based drugmaker that suffered a plunge in third-quarter earnings and sales, partly from temporary generic competition to its top-selling drug, the blood thinner Plavix. Bristol-Myers' stock fell about 1 percent since announcing earnings on Thursday, but has regained much of that ground, probably because the news was expected.

Great expectations

Unexpected problems with pipeline drugs are particularly troublesome to investors, because the drug industry is betting its future on finding new drugs that will generate big sales.

Going forward, the FDA is expected to make an announcement concerning the review of Acomplia, an experimental diabetes drug from Sanofi-Aventis (down $0.72 to $43.59, Charts), and that news will effect the French drugmaker's stock price, said Amusa of Bernstein.

When it comes to drug development, Funtleyder of Miller Tabak said there is often "a mismatch between investor expectation and the reality."

"Drug discovery is not easy, and sometimes I think people forget that the attrition rate on developing new products is high," he said. "They fail a lot, and that's why, when they succeed, they get to charge such outrageous prices. Yes, this is a risky area."

The analysts interviewed for this story do not own shares of stock in companies mentioned here.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.