How to analyse the pharmaceutical assets on the stock markets

With the Covid pandemic that hit the world in 2020, numerous investors have decided to turn towards investing in pharmaceutical assets which have displayed an unprecedented rise due to the recent crisis. If you wish to invest in this sector then you will need to know how to complete full and pertinent analyses of the best pharmaceutical shares before buying or trading in them. In this dedicated article we provide information about these assets that will undoubtedly assist you when analysing these share prices.  

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How to analyse the pharmaceutical assets on the stock markets

What is the pharmaceutical sector on the stock markets?

On the stock markets, as with the general economic principles, the pharmaceutical sector corresponds to companies quoted on the stock markets that exercise their activities in the pharmaceutical industry sector.

The pharmaceutical industry we refer to here is the economic sector relating to the research, production and marketing activities of medical products for humans and animals.

This market is in fact highly important on the stock markets as it is the third largest economic sector worldwide after oil and the food sector. At the heart of this activity sector we find a number of different kinds of companies including mainly the pharmaceutical laboratories and the biotechnology and biopharmaceutical companies.

It is important to distinguish between these two categories of companies quoted on the stock markets as their activities how they should be analysed are different. Concerning the pharmaceutical laboratories, these are sufficiently well known and familiar to not have to present them more in detail.

However concerning biotechnology this relates to the application of science and technology relating to living organisms and the components, products, and models for modifying living or non living materials in order to increase knowledge, goods and services. This definition is according to the OCDE. But to be even clearer, the biotechnology companies in which you can invest on the stock markets are companies that above all conduct research. Their activities mainly consist of developing candidate medicines and vaccines, conducting tests through different clinical trial phases and finally obtaining the authorisation necessary to launch these medical products onto the markets for use and sale.

It is also important to know that these biotechnology companies often work in partnership with pharmaceutical laboratories that financially assist their research activities in exchange for the right to market the final products or for percentages of the sales once the products are on the market.


How to complete pertinent fundamental analyses on pharmaceutical companies share prices?

As you can imagine, given that the pharmaceutical sector is highly specific, the assets in this sector that are quoted on the stock markets cannot be analysed in exactly the same way as share prices from other activity sectors, notably as related to a fundamental analysis.

In fact, the factors and publications that you should monitor for the completion of a fundamental analysis relating to a laboratory or biotech company are more specific to these activities.

As an example, you should learn about the scientific and medical research conducted by these companies. Here you will need to know details of the significant investments often made by these companies in research and development which tend to weigh heavily on their profitability. We would also attentively follow the development and different phases of clinical trials and tests up to the final request and granting of authorisations for a launch onto the market of new products. Successful investing in these assets requires a certain interest and basic knowledge therefore in science and medicine without however requiring investors to be specialists in these sectors.

Another highly specific factor related to the fundamental analysis of a pharmaceutical asset concerns the patents. A patent is a type of security that provides the legal protection of an innovative product, here of course in the pharmaceutical sector, and which prevents another company from using a specific formula or product developed by one company from being also developed by another for its own benefit. These patents often follow cycles as they are granted for a specific period. During this period the only company on the market that is authorised to use these products is the patent owner and the companies to whom the owner has sold user licenses. Once this time period has passed other companies can use these patents with the purpose of developing their own similar products.

Following the up to date health sector news and events from around the world will also assist you here in your analyses of pharmaceutical company shares. In fact, over time, the illnesses, viruses and medical problems facing the population will change and evolve. With a good basic knowledge of the market requirements you will be better able to choose the assets that could respond to this demand and therefore predict which companies could easily increase their market share.

Finally, it is also important to closely follow the news and events of these pharmaceutical companies and notably all announcements regarding acquisitions, mergers, partnerships or even litigations or accusations. The information available on these subjects is easily available and of a large quantity and will enable you to know how a particular asset you are following may change according to the market feeling and the possibilities for growth or recession it faces.

It is clear that you also need to take into account the classic factors of fundamental analysis such as the competition, the financial results and the plans for strategic development.


How to complete an effective technical analysis of pharmaceutical company shares?

Regarding the strong appeal for investors in pharmaceutical assets, the share prices often display an extremely high volatility. It is therefore extremely important to adapt your trading strategy according to this volatility as the higher the volatility of an asset the higher the risk factor for your investments.

The best way to know the current volatility of a pharmaceutical company share price remains the completion of a technical analysis of the asset concerned. This analysis consists of using the historical stock market charts for the detection of a number of factors. On the more advanced charts available on the market it is possible to use volatility indicators that can be displayed directly on the charts for an easier consultation.

However, a technical analysis does not only provide indications relating to the volatility of a pharmaceutical company share price. In fact it also enables you to identify current trends and their strength as well as any possible signs of a reversal in the share price direction or an acceleration of a current trend. Here we would particularly monitor the support and resistance levels and the pivot points.

Among the most popular technical indicators for completing analyses of pharmaceutical or biotechnological company share prices we particularly note the MACD, Bollinger Bands and moving averages.


What is the information necessary for an analysis of a pharmaceutical company share price?

To analyse these pharmaceutical company share prices in a comprehensive and pertinent manner you will of course need to be familiar with each asset that you investigate. In other words, you will need to have all the information to hand that could be useful to analyse the share price of your chosen asset and thereby best predict any future movements.

Here therefore is the data and information that you should know before starting your analyses of these shares.

  • The company and its precise activities: You should know details of the activities of each pharmaceutical or biotechnological company together with its major products, current research activities and the principal sources of income.
  • The direct competitors of the company: You should also be able to complete, for each asset, an analysis of the competition of the issuing company. To do this you will need to know the major competitors of the company concerned as well as the activities, news and events and market parts of each of these competitors.
  • The strategic partners: It is therefore clearly important to know the competitors of a company but it is equally important to know a company’s allies. The pharmaceutical sector companies in fact often implement strategic partnerships and alliances with other companies in the same sector to reduce costs and develop new products or gain parts of the market share.
  • The strengths and weaknesses of a company: Being familiar with the strong and weak points of a pharmaceutical company is also an important point in order to understand the reasons for its current position on the market and abilities to face threats as well as the opportunities it has for growth in the future.
  • The exterior factors that influence its price on the stock markets: you should also know the factors that may exert an influence on a pharmaceutical company share price and which should therefore be examined during a fundamental analysis of this asset.
  • Finally, you should also know certain general stock market information such as the share market capital of these companies, the number of shares in circulation on the market, the place and market where the shares are quoted, the major stock market index and the activity sector.

If you do not know how or where to find this information then you will surely be pleased to know that we have published a number of dedicated articles on this website relating to the larger pharmaceutical and biopharmaceutical companies with the aim of assisting you by listing details of all the elements and factors useful for your analyses in the same place.

Frequently Asked Questions

Is it possible to invest in pharmaceutical company shares online?

Due to the boom in online brokers it is of course now possible to speculate on the majority of the larger pharmaceutical company share prices directly online. To do so you could notably use CFDs , or ‘Contracts for the Difference’ which enable you to take position on a rise or fall in the share price of the laboratory or biotech companies that are quoted on the stock markets on the large European or international stock market indices. You could also use a trading account to buy these pharmaceutical sector company shares directly to add to a stock market portfolio.

How to choose a pharmaceutical asset to invest in?

There are numerous companies in the pharmaceutical sector that are quoted on the stock markets. The choice of investing in one company rather than another resides on various criteria that you should evaluate carefully. It is equally important not to forget to choose an asset that is adapted to your investor profile, your knowledge and your chosen trading period. In this way it is more likely that you will succeed in completing pertinent analyses than with an asset that you are totally unfamiliar with.

Is now the right time to buy pharmaceutical company shares?

The answer to this question is complex as all the assets in the pharmaceutical sector do not necessarily change in price in the same direction and at the same time. It is therefore necessary to complete an examination on a case by case basis to determine the advantages of buying or selling shares in the different companies in this activity sector. This decision should obviously not be made without first completing comprehensive and pertinent analyses of the shares that interest you.

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