This morning, the performances of the major UK 100 Pharmaceutical companies perfectly highlights the nature of the industry and some of the rewards (and, of course, risks) of investing in the sector. Just last week my colleague Mike wrote about reversing fortunes of the UK Index ‘s pharmas and their upside potential. Yet today the sector is providing a mixed bag of performances.

Astrazeneca (AZN), currently +0.8%, has been one of the top performers on the blue-chip index this morning despite yesterday’s reports of a hasty exit for the head of its oncology department to take up a new role with French firm Innate Pharma. The surprise departure seemed to have even taken Astrazeneca by surprise, with no official statement released by the company after the news broke, which ultimately resulted in the drugs giant finding itself in the worst five performers of the day. However, 24 hours later and the company finds itself in the top fifth of the table, a remarkable turnaround from yesterday’s losses.

Hikma Pharmaceuticals (HIK), on the other hand, is right at the back of the pack today, down by 2%.  This marks a swift turnaround from yesterday where HIK closed as the top performer of the day, most likely as a result of its peer’s misfortunes coupled with US Dollar strength, whilst today a pre-market downgrade from analysts at Morningstar has completely changed its fortunes.

Meanwhile, peer Shire (SHP) has recovered from a poor start to the trading session, however continues to hover just above the foot of the table, whilst GlaxoSmithKilne (GSK) finds its share price rallying not far behind that of Astra’s after this morning it was confirmed that the company’s ViiV Healthcare subsidiary had produced positive trial results from one of its HIV drug treatments.

This disparity in performances highlights the unpredictable nature of the pharmaceutical industry, where many share price movements are based solely on the performance and approval (or disapproval) of key drugs in the UK, Europe and most notably the US. Previous rulings from the US Food and Drug Agency (FDA) have culminated in both rallies and slides of epic proportions, none more so than in the case of Astra over the past few months.

The suspension of testing for one of its key in-development cancer drugs in October raw AZN’s share price slide, making it one of the most consistent underperformers on the UK 100 in late October through to early December. However, when it was announced that another drug had been granted FDA approval on December 9, its share price rallied by as much as 6.9% on the day to eventually settle +4.3%.

This, alongside today’s role reversals, highlights the key rewards and hazards of investing in pharma stocks. Whilst companies in this sector can regularly provide seemingly unmissable opportunities for wary investors to benefit from impressive immediate gains, it also shows that the unpredictable nature of producing and testing drugs can have massively varying implications day-to-day.

As a result, it is key that investors do their research as diligently as those companies that they are investing in. For both parties, finding out that the drugs don’t work could be an expensive venture.

Henry Croft, Research Analyst, 20 December