Stocks Lackluster in First Quarter

First-quarter stock performance for chemical, drug, and biopharmaceutical companies was as much influenced by geopolitical events early in the year as it was by economic realities. What followed was a varying set of results for the three indexes maintained by C&EN.

The best performance came from the biotech index of 15 companies, which eked out a modest 2.6% gain over the end of 2003 to 445.4. The chemical company index was almost unchanged, falling just 0.1% to 167.4, while the pharmaceutical index fell 6.9% to 355.8. All three indexes are based on 1992 equaling 100.

This performance contrasts greatly with the rates of change in the fourth quarter of 2003, when the chemical index rose 20.3% and the biotech index jumped 48.1%. Only the pharmaceutical company index performed sluggishly in the fourth quarter, turning in a 3.3% rise.

Both chemicals and biotech outperformed broader market indexes in the first quarter. The Dow Jones industrial average fell 0.9% during the period, while the NASDAQ declined 0.5%.
The chemical index peaked early in the quarter, on Jan. 8, when it hit 170.0, 1.4% above its Dec. 31 close. Then, as stock markets around the world were hit by worries over rising oil and natural gas prices, the terrorist attack in Spain, and the Mideast turmoil, the index slowly and fitfully sank to its low of 156.7 on March 22, 6.6% below the end of 2003. In the week and a half that ended the quarter, it increased 6.8%.

Stock price increases for the 25 companies making up the index certainly were not widespread. Just nine of the firms saw their stock become more valuable during the quarter, while stock prices at the other 16 declined. Thus, a few of the companies saved the index from being worse than it was.

For instance, IMC Global’s stock rose 44.0% in the quarter to $14.30 per share on the news that it and Cargill would merge their agricultural chemicals businesses into a separate, publicly traded company. And FMC’s stock rose 25.5% to finish at $42.82 per share. Most of the increase at FMC came in the last three trading days of the quarter, when the price jumped 15.4% after the company said it would substantially beat securities analysts’ estimates of first-quarter earnings.

Other companies with double-digit increases were Monsanto, up 27.4% to $36.67 per share; W.R. Grace, up 21.4% to $3.12; and Arch Chemicals, up 10.0% to $28.23.

Share prices at the two largest U.S. chemical companies—Dow Chemical and DuPont—declined in the quarter. The stock price of industry leader Dow declined 3.1% to $40.28 per share, while number two DuPont’s shares fell 8.0% to $42.22.

While the chemical index ultimately seemed to be standing still, the pharmaceutical index dropped. It increased through almost the first half of the quarter, making its high of 392.2 on Feb. 11, 3.6% above the December close. Its low of 347.9 came on March 24, 8.1% below the December close.
Only one of the nine companies that make up the index had a higher stock price at the end of the quarter than it had at the beginning. This was Baxter International, whose shares rose 1.2% to $30.89.

Big losers in the quarter were Bristol-Myers Squibb, Abbott Laboratories, and Wyeth. Bristol-Myers was down 15.3% to $24.23 per share. The company, which has been operating under a cloud of accounting problems for some time, had to restate results for the past few years. And Wall Street does not like it when companies restate results.

Abbott’s stock price fell 11.8% during the quarter to $41.10 per share after the company’s earnings guidance for the first-quarter and for full-year 2004 fell short of analysts’ estimates.
And Wyeth was down 11.5% to $37.55 per share after, among other problems, being cited for misleading claims for its selective serotonin inhibitor Effexor and the halt of trials on new uses of its hormone replacement therapy Premarin. Although the estrogen drug was found by the National Institutes of Health to decrease the risk of hip fracture, it also increased the risk of stroke.

The biopharmaceutical index was at its highest on March 5, at 479.0, up 10.5% from its 2003 close, and hit its low of 430.5 on March 22. The low was off only 0.7% from the last day of December.

ANALYSTS AND INVESTORS were relatively optimistic about most biotech stocks in the quarter, but there were a few companies that did not hold favor. Chiron fell 22.8% to $44.01 per share after a couple of analysts downgraded its stock.

Earnings guidance from two companies sparked a downturn in the respective stock prices. Xoma had a 22.1% price decline to $5.14 per share after it said it would post a 2004 loss greater than its 2003 loss of $58.7 million.

And Icos said it expects a loss between $192 million and $215 million this year compared with a loss of $125.5 million in 2003. This drove its stock price down 10.5% to $36.93 per share.

In the first three trading days of the second quarter, the rally that began near the end of March continued as investors focused on an employment report from the Labor Department that indicated economic expansion and anticipated improved corporate earnings.

Thus, by April 5, the Dow Jones industrial average had risen 1.9% from the end of the first quarter to 10558.4. And the NASDAQ had climbed 4.3% to once again close above the 2000 level at 2079.1.

C&EN’s chemical and drug indexes both beat the Dow Jones average, but not the NASDAQ in those three days. The chemical index was up 2.6% to 171.7 while the pharmaceutical index rose 2.8% to 365.5. The biotech index beat both of the broad indexes, increasing 4.7% to 466.5.

TABLE 1 - CHEMICAL STOCKS
Stocks at most chemical companies fell in first quarter, but there were some big increases

TABLE 2 - DRUG AND BIOTECH STOCKS
Biopharmaceutical stocks rose, but drug stocks took a hit in first quarter