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Drug company stocks only do well in a “gloom and doom” market where they look good by comparison, Sanford Bernstein analyst Jack Scannell told CNBC Wednesday.

These stocks have underperformed, he said, and “if you are a macro bull you wouldn’t want to own them. If you’re a macro bear you would.”

In Scannell’s view, the late 1990s was an unusually productive time for research and development, with a large number of very valuable drugs discovered. But that has been declining, he said, and the patents will soon be expiring.

“That’s why we see saw a severe contraction in multiples in the late 1990s until about 2009,” Scannell said.

As a result, the only period of outperformance for drug stocks is when the market is going down.

“So the second half of 2011 was a very good time for drug stocks, not because the fundamentals of the pharmaceutical sector were getting better, but because they bottomed out, expectations were low, dividends yields were 4 to 5 percent, and medium-term earnings were highly predictable," he said.

That predictability is one of the few advantages of these stocks thanks to the patent expiration dates, he added, noting that will be a bad year for AstraZeneca

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[AZN  Loading...      ()   ] because it has patents expiring, for instance. At the same time, he said some therapy areas have been seeing productivity increasing.

“In drug stocks, once you’ve got a successful product it will grow for many, many years,” he said, giving no recommendations one way or the other.

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Disclosures:

Disclosure information was not available for Jack Scannell or his company.

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