Life Sciences Sector - A less defensive sector than in the past

Fernando Luque 02.07.2002
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Regulators tightening requirements for patent approval combined with patent expirations and competition from the generics are putting pressure on the big pharmaceutical companies and explain the losses registered by this sector in May.

Investor sentiment

The Life Sciences sector (measured by the MSCI Health Care Index) has dropped 2.5% (in dollars) during May vs a 0.9% decline for the S&P 500. In great part this is due to its biotech component. For example, the Nasdaq Biotech Index has registered a loss of 11.1% during this period greatly influenced by the bad performance of Amgen (-9.9%), the world

biggest biotech company.

The behaviour of the major pharmaceutical companies has been quite different from one company to another with the British GlaxoSmithKline registering huge losses (-15.4% due to the future loss of its patent on its antibiotic Augmentine) and the American Merck strong gains (5.1%). This shows us that in this category (as in many others) the skills of the managers is highly responsible of the fund performance.


Most investors still see the Life Sciences Sector as a defensive sector benefiting from a continuing ageing population and an increasing demand for new products. These elements still contribute positively for the pharmaceutical funds but the fact is that this sector must face some recent problems like the loss of some important patents, the increasing competition from the generic products and the tightening requirements from the North American Food and Drug Administration. This will increase the volatility of the funds of this category and specially those who include biotech companies in their portfolios. An other element that will probably affect the sector is the possible concentration between some of the largest companies. Recently the rumours pointed to a possible merger between GlaxoSmithKline an d Bristol Myers Squibb.

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Fernando Luque

Fernando Luque  es el Senior Financial Editor de

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