For an industry that’s supposed to be in the midst of falling off a patent cliff, a surprising number of pharmaceutical stocks have done very well this year. Gilead Sciences (GILD) shares are up 44% for 2013 so far. Bristol-Myers Squibb (BMY) has gained 45% year-to-date. Johnson & Johnson (JNJ) is up 21% since the end of last year.
That’s great for current owners, but not one of these names has the most compelling trailing or projected earnings situation. Johnson & Johnson will do well to grow earnings at a pace of 3% for the next several years. And although Gilead’s bottom line should start to pick up the pace in 2014 when (or if) its hepatitis C drug sofosbuvir is approved, that outlook is nothing more than a guess.
Of all the drug stocks that are vulnerable to a pullback, though, Bristol-Myers Squibb poses the biggest pullback risk.
The company is now into its second year of declining sales and profits, and FY2014 isn’t looking much better. The company’s in-development cancer drug nivolumab and lipodystrophy drug metreleptin are in the pipeline, and queued up for an approval in the foreseeable future. But the market seems to have priced in an absolute approval for both, and assumed both would hit peak sales very quickly. Once traders get a chance to digest a little reality, they might dial down the stock’s price.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.