Chemical Stocks Star In Quarter

The first three months of 2006 were good for chemical company stocks but not so good for the shares of pharmaceutical and biopharmaceutical companies. C&EN's index of chemical company stocks beat the major indexes, such as the Dow Jones industrial average, for the quarter, while drug and biotech indexes lagged behind.

C&EN's index of 25 chemical companies scored an increase of 8.4% from the last trading day of 2005 to close at 212.4 (all C&EN indexes are based on 1992 = 100) on March 31. Meanwhile, the Dow Jones industrial average rose 3.7%, the Standard & Poor's 500 was up 4.2%, and the NASDAQ rose 6.1%.

Not so fortunate were C&EN's pharmaceutical and biopharmaceutical indexes. The drug index increased 2.7% to close at 357.0, and the index of biotech companies was hardly changed, rising just 0.4% to finish the quarter at 569.9.

With the strong chemical stock recovery in the first quarter, not to mention a 5.2% increase in the index in fourth-quarter 2005, the industry is making up for dismal stock performance in the second and third quarters of 2005, which were plagued by worries about higher oil prices. In addition, in the third quarter there was much uncertainty about the extent of the damage caused by the Gulf Coast hurricanes. As a result, the two recent quarterly increases put the index only 2.2% above the index of March 31, 2005.

Rising stock prices were widespread among the 25 companies that make up the chemical index; 16 advanced and nine declined. More important, nine companies posted double-digit increases in the quarter, and just one, Georgia Gulf, had a decline greater than 10%.

The largest percentage increase was at H.B. Fuller, whose stock price increased 60.1% to $51.34. Fuller showed strong fourth-quarter earnings performance when it reported on Jan. 17. Then it posted equally heady results when it reported for the first quarter on March 28: Its earnings, excluding unusual items, of 52 cents per share roundly beat security analysts' estimates of 27 cents.

Second to Fuller's increase was a 31.4% share-price jump to $39.61 at Engelhard, which is fighting a hostile takeover bid from BASF. But, as no other companies have stepped forward to rescue the company, investors are assuming that BASF has a good chance of winning the prize.

A $750 million contract to supply high-performance composite materials to Lockheed Martin helped Cytec Industries overcome a downgrade by one analyst and send its stock price up 26.0% to $60.01 per share at the end of the quarter.

And an announced restructuring, plus the possibility of improved demand for industrial gases as the Gulf Coast rebuilds, pushed Air Products & Chemicals' stock to $67.19 per share, up 13.5%.

Pharmaceutical companies did not feel the pricing and weather pressures that affected the chemical industry in 2005, so they have had less stock volatility. Nonetheless, the pharmaceutical index declined in both quarters of second-half 2005 before rising 2.7% to close the first quarter of 2006 at 357.0.

Of the nine companies that make up the index, Eli Lilly & Co., Johnson & Johnson, and Schering-Plough saw their stock prices decline. Johnson & Johnson's share price fell 1.5%, to $59.22; Lilly's was down 2.3%, to $55.30; and Schering-Plough's dropped 8.9%, to $18.99.

Only one drug firm had a double-digit increase in its stock price. Merck, despite the thousands of potential lawsuits pending over its discredited painkiller Vioxx, saw its stock price climb 10.8% to $35.23 per share. Raising its favor among analysts, Merck during the quarter said its restructuring program is on track and that it had eliminated 1,100 positions by the end of 2005.

Abbott Laboratories' stock showed a 7.7% increase to $42.47 per share, as its earnings per share for the fourth quarter, reported on Jan. 25, came in right in the middle of the company's earlier forecast of 75 to 77 cents per share.

Bristol-Myers Squibb's stock price rose 7.1% to $24.61 per share on earnings per share for the year, reported Jan. 25, of $1.43. This stock-price increase came despite the firm's forecast of lower earnings per share for 2006 of between $1.15 and $1.25.

And Pfizer, the world's largest drug producer, had a stock price increase of 6.9% to $24.92 per share.

The index for biopharmaceutical and drug discovery companies eked out a slim 0.4% rise for the quarter to 569.9. This lackluster gain may just represent a breather from the fourth quarter of 2005, when the biotech index outperformed all the others, rising 7.3%.

The best performance was at Xoma, also the company with the lowest share price of the 15 firms that make up the C&EN index. Xoma's stock during the quarter rose 43.1% to $2.29 per share. Fueling the gain, the company finally showed positive full-year net income, of $2.8 million, when it announced results in early March. Cytogen, the company with the second-lowest stock price, also scored; its stock price increased 32.1% to $3.62 per share.

The two largest biopharmaceutical companies, Amgen and Genentech, saw their stock prices slide during the period. Amgen's stock price was down 7.7% to $72.75 per share, and Genentech's fell 8.6% to $84.51 per share.

In the first week of the second quarter, stock indexes rose but then plummeted on April 7, the last trading day of the week, thereby wiping out essentially all of their gains. The Dow Jones industrial average finished the week at 11120, up 0.1% from the end of March, and the NASDAQ fell to 2339, about where it was at the end of the prior week.

Chemical, drug, and biotech stocks followed suit. The chemical index fell 0.2% to 211.9; the pharmaceutical index was down 2.2% to 349.1; and the biopharmaceutical index dropped 3.4% to 550.7.