Investor sentiment towards Pharmaceuticals
Between 2007 and 2011, the weighting of the Pharmaceutical sector in the FTSE 100 has decreased from 8.4% to 7.1%. The closure by Pfizer of Britain’s largest foreign owned research and development facility has sparked debate of the future of Pharmaceuticals in the UK. We look at investor sentiment in UK domicile companies in comparison to foreign companies including; GlaxoSmithKline (LON:GSK), Astrazeneca (LON:AZN), Amylin Pharmaceuticals (NASDAQ:AMLN), Eli-Lilly and Co. (NYSE:LLY), Alkermes (NASDAQ:ALKS) and Sanofi-Aventis (EPA:SAN).
The two UK Pharmaceutical giants, GlaxoSmithKline and Astrazeneca, are thinly traded stocks in securities lending, with short interest flat at 0.1% and 1.8% of total shares outstanding on loan respectively. Interestingly, despite falling share prices in both stocks since October, holdings of large funds who lend, which can also be used as a proxy for institutional ownership, have remained largely static representing a quarter of total shares outstanding. Both stocks see almost a quarter total shares outstanding available to lend.
Amylin, Eli-Lilly and Alkermes all faced bearish sentiment recently with falls in share price following the failure of their once-daily treatment for a diabetes drug. Although a large sell-off in holdings from institutional owners was observed in Amylin and the share price hover just one U.S. dollar above the annual low, short covering in the stock continues reducing short interest by almost half since February to 5.4% of total shares outstanding on loan. Amylin currently has several convertible bonds in issue, and the observation that the percentage of shares outstanding on loan is closely tracking share price, may be indicate that the stock is experiencing convertible arbitrage.
Short interest in Eli-Lilly and Co has been in gradual decline over the past year having reduced from 4% to 1.2% of total shares outstanding on loan. Institutional owners have been holding steady on their investments, which represent 27% of total shares outstanding. Are investors awaiting new developments from the company to indicate further direction of investment?
Alkermes is subject to negative investor sentiment from both the long and short sides of the market. Short interest has doubled to 4% of total shares outstanding on loan over the past quarter as the share price rallied. However, the recent fall in share price has not yet triggered any short covering. Institutional owners have been gradually reducing their holdings over the past year by 25% over the past year. It must be noted that there is also a convertible bond in issue in this stock.
French listed, Sanofi-Aventis is reported to reduce its operations to 10 European subsidiaries, compared to more than 30 at present, as part of its reorganisation plans. The drug maker also bought U.S. company Genzyme last month indicating further interest beyond Europe. There has been a slight uptick in short interest over the past month from 1.4% to 2.2% of total shares outstanding on loan.
