Grant H Skrepnek, Matthew C Dickson, Eric J Johnson
Sustained risk-adjusted return underperformance within the publicly-traded pharmacy sector resulted in the destruction of over $240 billion in market value from a peak to trough during the 2010-2024 timeframe, highlighting that the sector's equity valuation has diminished despite an era of increasing prescription volume.
BACKGROUND: Large pharmacy corporations receive the highest share of annual prescription revenue, yet have reported substantial closures and declining market capitalization.
OBJECTIVES: To assess the risk-adjusted financial security price performance of publicly-traded pharmacy corporations from 2010-2024.
METHODS: This cross-sectional time-series analysis of the publicly-traded pharmacy sector used monthly, firm-level securities data from The Center for Research in Security Prices (CRSP) during 2010-2024. Expanding upon the Capital Asset Pricing Model (CAPM), the Fama-French Six-Factor Asset Pricing Model (FF6M) was employed to assess multivariable risk-adjusted excess returns (i.e., alpha) and risk exposures or premia, while an event study methodology assessed long-term risk-adjusted cumulative abnormal returns (CAR). The study's outcomes included security market performance returns measured as: 1) returns differing from a risk-free rate; 2) risk-adjusted returns differing from other systematic factors in the FF6M; and 3) nominal versus expected returns across specific event windows using long-run estimation periods (i.e., CAR).
RESULTS: Overall, 18 publicly-traded pharmacy corporations reached a peak market capitalization of $316.25 billion in July 2015, followed by troughs of $114.13 billion in October 2020 and $76.23 billion in December 2024 to represent a 76% maximum decline. Unadjusted, annualized nominal returns were 17.45% from 2010-2014, 0.58% from 2015-2019, and -19.22% from 2020-2024. The multivariable risk-adjusted annual excess returns via the FF6M were statistically significant and negative across 2010-2024 (-6.15%, p=0.004), underscored by significant, negative returns from 2015-2019 (-7.14%, p<0.001) and from 2020-2024 (-22.97%, p<0.001). The event study portfolio beginning in January 2020 yielded a risk-adjusted CAR of -190.58% by December 2024 (p<0.001).
CONCLUSIONS: Sustained risk-adjusted return underperformance within the publicly-traded pharmacy sector resulted in the destruction of over $240 billion in market value from a peak to trough during the 2010-2024 timeframe, highlighting that the sector's equity valuation has diminished despite an era of increasing prescription volume.