Big pharmaceutical companies are facing slowing growth in several markets, unfavorable foreign exchange rates and other pressures as they start reporting third quarter earnings, according to a Jefferies analyst who lowered his rating on three stocks.
Analyst Jeffrey Holford said in a Friday research note he sees "deteriorating base business fundamentals and yield support" hurting most of the companies he covers.
Holford noted that pricing challenges in Europe and a slowdown in the Chinese pharmaceutical market are adding pressure to companies as they emerge from a time frame in which they saw the expiration of patents protecting many key products from cheaper generic competition. He downgraded Eli Lilly and Co. and British drugmaker AstraZeneca Plc. to "Underperform" from "Hold" and Merck & Co. Inc. to "Hold" from "Buy."
The analyst called Lilly "our least preferred U.S. stock" and said the drugmaker has become too reliant on its remaining pipeline of drugs under development for growth. He also said he was skeptical of the remaining pipeline assets.
Holford added that AstraZeneca's research and development productivity also has been disappointing, and Merck is going through a more limited cost-cutting program than expected.
Merck said earlier this month that it planned to cut another 8,500 jobs in addition to 7,500 cuts it had previously announced but hadn't carried out. The Whitehouse Station, N.J., company expects the moves to help generate annual savings of about $2.5 billion by the end of 2015.
Lilly shares fell 33 cents to $48.83 in Friday afternoon trading, Merck slipped 22 cents to $47.28, and U.S.-traded shares of AstraZeneca climbed 69 cents to $51.07. Meanwhile, the Standard & Poor's 500 index climbed less than 1 percent.