The pharmaceutical sector has been grabbing investors’ attention of late with the NYSE ARCA Pharmaceutical Index gaining 13.1% and the Large Cap Pharmaceuticals industry 20.7% year to date, outpacing 14.7% gain for the S&P 500. New drug approvals and tax reforms are expected to provide a further impetus to the stocks. However, factors like drug pricing and competition from biosimilars will continue to act as major deterrents.
On the other hand, companies like Eli Lilly and Company LLY are resorting to workforce reduction for a leaner cost structure. On the M&A front, apart from Johnson & Johnson’s JNJ acquisition of Actelion Ltd in June, nothing much has happened in this space. Merck & Co MRK recently announced that it will acquire Germany-based Rigontec, a privately held immuno-oncology focused biotech to boost its immune-oncology pipeline. Nevertheless, the proposed tax reforms are expected to boost cash balances of the companies which in turn can be used for mergers/acquisitions.
Here we have picked four of the largest drug companies which look well poised for growth and can be a prudent choice for adding to one’s portfolio:
Based in Switzerland, Novartis AG NVS is one of the leaders in health care solutions with a wide array of drugs and services. Novartis has a presence in the field of oncology, neuroscience, ophthalmology and generics. Novartis has a strong oncology portfolio of drugs like Afinitor, Exjade, Jakavi, Zykadia, Tasigna, Jadenu and an improved formulation of Exjade.
The recent FDA approval of Kisqali for advanced or metastatic breast cancer and breakthrough gene transfer treatment, Kymriah suspension for acute lymphoblastic leukemia has further boosted the portfolio. The approval is a major boost for Novartis given the potential in the CAR T therapy space.
Growth drivers like Cosentyx and Entresto more than offset the impact of generic erosion, mainly due to Glivec. Cosentyx achieved blockbuster status in 2016. We believe that the approval of new drugs and label expansion of existing ones should boost the top line going forward. Novartis currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
Novartis’ stock has gained 21.8% year to date. Strength in oncology drugs and the approval of the first CAR T therapy should continue to boost performance.
Pfizer, Inc. PFE , one of the leading pharmaceutical companies in the United States, focuses on the development and commercialization of a wide range of products including human and animal biologic as well as small molecule medicines and vaccines, along with consumer health care products. Pfizer is looking to drive growth through licensing deals and collaborative agreements.
The company is looking to expand the labels of approved drugs like Ibrance, Xeljanz, Xalkori and Eliquis. Pfizer also boasts a strong pipeline. Moreover, Pfizer is evaluating various biosimilar molecules in several stages of development given the potential in the market.
Shares of the company have moved up 9.3%, in the last three months comparing favorably with the industry’s gain. Pfizer presently carries a Zacks Rank #2. Earnings estimates of the company for 2017 have been static over the past 60 days.
Bagsværd, Denmark-based Novo Nordisk A/S NVO is a global leader in the diabetes market. The company is also a key player in hemophilia care, growth hormone therapy, hormone replacement therapy and obesity. The company’s portfolio includes drugs like Levemir, NovoRapid, Victoza, NovoMix 30, NovoMix 50, NovoMix 70, NovoSeven, NovoThirteen and Norditropin.
Additionally, obesity drug, Saxenda (liraglutide 3 mg) was launched in the United States in 2015 and its uptake has been encouraging. Victoza is currently the market leader in the GLP-1 segment and we expect Victoza to continue being a significant contributor to the company’s top line. In August, the FDA approved a new indication for Victoza to reduce the risk of major adverse cardiovascular (CV) events in adults with type II diabetes and established CV disease.
We believe the label expansion of drugs will further boost the top line. The company currently carries a Zacks Rank #2. The company’s shares have rallied 40.5% year to date. The company’s earnings estimates for 2017 have moved up 3% over the last 60 days.
Headquartered in Leverkusen, Germany, Bayer AG BAYRY is a life science company with core competencies in the areas of health care and agriculture. Bayer has been consistently making efforts to transform into a pure life science company. Drugs launched over the last few quarters are expected to continue to drive the top line. Bayer is looking for a label expansion of its oncology drug Stivarga, which is approved for the treatment of metastatic colorectal cancer and metastatic gastrointestinal stromal tumors.
The company has inked several strategic deals and undertook meaningful acquisitions in the recent past. Bayer is looking to acquire Monsanto in an all-cash transaction and the combined business is expected to boost Bayer’s Crop Science business and provide accretion to its bottom-line.
Bayer currently carries a Zacks Rank #2 (Buy). The company’s shares have gained 35.1% year to date. Earnings estimates for 2017 of the company have moved north 3.2% over the last 60 days.
Challenges in the form of pricing pressure and competition will remain in the healthcare sector. Nevertheless, picking some outperformers from the space, backed by a solid Zacks Rank and positive price movement could lead investors to gain this earnings season.
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