Chemical Stocks Jump in Quarter

The stock market in the second quarter was not exactly jumping, and the major market indexes turned in merely reasonable performances. The Dow Jones industrial average rose 0.8% from the end of the first quarter. The Standard & Poor's 500 increased 2.6%, and NASDAQ was up 2.7%.

Chemical stocks, however, outshined them all as fortunes of the entire basic manufacturing sector improved in the quarter. C&EN's index of 25 chemical company stock prices increased 8.1% in the quarter from the previous three-month period to finish at 181.0 (1992 = 100 for all C&EN stock indexes). June 30 also marked the high point for the second quarter.

In addition to outperforming the major market indexes, chemical stocks also did better than the pharmaceutical and biopharmaceutical stocks tracked by C&EN. The index made up of nine major pharmaceutical producers rose 4.3% to close the quarter at 371.1. The biopharmaceutical index, composed of 15 firms, finished the quarter at 458.8, up 3.0%.

At the end of the second quarter, chemical stocks had risen 7.9% from the end of 2003. By comparison, the Dow Jones was down 0.2% for the first half of the year, NASDAQ was up 2.2%, and Standard & Poor's 500 increased 2.6%.

Only four of the chemical companies saw stock prices lower at the end of the quarter than they had been at the end of March. IMC Global, which is merging with Cargill's agricultural chemical unit to form a new publicly owned company, fell 6.3% to close at $13.40 per share. Cambrex almost equaled that decline, dropping 6.2% to $25.23 per share.

Crompton, which has had lackluster stock performance since it became involved in several price-fixing investigations relating to rubber and rubber chemicals, had a 1.3% decline to $6.30 per share. Crompton's share price was down 12.1% through the first six months of the year. H.B. Fuller was off a mere 0.1% for the quarter to $28.40 per share.

The largest percentage gain among the companies was at W.R. Grace, which saw its stock price almost double to $6.20 per share. For the year to date, Grace's stock has risen 141.2%. Stock at the bankrupt company has been highly volatile, rising and falling not only on its financial prospects, but also on the outlook for asbestos settlement legislation in Congress.

The second largest percentage gain was a mere--compared to Grace--27.8% rise at Cytec Industries to $45.45 per share. Cytec, which last month said its specialty chemicals and specialty materials units are doing well in the U.S. and Europe, had the largest quarterly dollar increase of the 25 companies: $9.88 per share.

Other double-digit increases in share prices were seen at Cabot, up 24.1% to $40.70; Georgia Gulf, up 18.9% to $35.86; Lubrizol, up 16.3% to $36.62; Stepan, up 14.5% to $26.15; and Great Lakes Chemical, up 13.5% to $27.06.

At the nine pharmaceutical companies tracked by C&EN, just three companies had lower stock prices at the end of the second quarter than they had on March 31. Wyeth's shares fell 3.7% to $36.16. Stock in the company, which is still involved in litigation regarding settlement of diet drug claims, was down 14.8% for the first half of 2004.

Pfizer, the world's largest drug company, seems to be on nearly every financial publication's recommended list. Still, its stock has languished for the past few years, and in the second quarter, it dropped 2.2% to $34.28 per share. Through the first half, Pfizer's stock price fell 3.0%.

Abbott Laboratories was the third drug company with a lower price. Its stock fell 0.8% to $40.76 per share as approval came for generic versions of its thyroid hormone replacement drug Synthroid (levothyroxine sodium). Abbott stock was off 12.5% through the first half.

On the plus side, Schering-Plough had the largest percentage increase, following various reorganizations, cost-cutting initiatives, and divestitures as it struggles to regain a sound financial footing. Schering-Plough stock rose 13.9% for the quarter to $18.48 per share

GAINS AND LOSSES in biopharmaceutical stocks followed the usual trend of varying widely, from declines of more than 20% to gains of more than 20%. The distribution worked out as evenly as possible: Of the 15 companies, seven had lower stock prices and eight, higher.

Celera Genomics had the largest percentage price decline: 20.7% to $11.51 per share. The drop was spurred by release of the company's quarterly earnings report on April 27, which showed a $21.9 million loss. The next day, its stock fell 7.9%.

Like Celera, many of the biopharmaceutical companies that regularly have earnings losses saw their stock prices fall in the quarter. The share price at Protein Design Laboratories was down 19.7% to $19.13. And there were Icos, down 19.2% to $29.84; Millennium Pharmaceuticals, down 18.3% to $13.80; and Xoma, down 12.8% to $4.48.

But two other money-losing companies--Cytogen and Vertex Pharmaceuticals--had above-average stock growth for the quarter. Cytogen's stock price rose 28.5% to $15.90 per share, the largest increase among the 15 companies. Data from a small clinical trial indicated that Cytogen's targeted radiopharmaceutical Quadramet (samarium-153 lexidronam) might have survival benefits for prostate cancer patients. Quadramet is used to treat pain associated with prostate, breast, and other cancers that have metastasized to the bone.

The stock price at Vertex benefited from the company's collaboration with Merck to develop and market VX-680, Vertex's lead aurora kinase inhibitor, which is expected to enter clinical trials this year for the treatment of cancer. Vertex's stock ended the quarter up 15.1% to $10.84 per share.

In the first three trading days of the third quarter, the stock market, weighed down by investor concerns about the strength of the economic recovery, faltered. The Dow Jones industrial average fell 2.1%, and the NASDAQ dropped 4.1%. Stocks tracked by C&EN followed suit. The chemical index fell 3.6%; the pharmaceutical index, 2.1%; and the biopharmaceutical index declined 1.9%.

TABLE 1 - CHEMICAL STOCKS
Chemical firms' stocks beat the Dow Jones in the second quarter and the first half of 2004

TABLE 2 - DRUG AND BIOTECH STOCKS
Pharmaceutical stocks slightly bested biotechs in the second quarter