The stocks of leading pharmaceutical firms shifted to growth mode this year after winding up 2018 on a low note, in line with the general trend Wall Street has witnessed. The upward movement of S&P’s pharma index in recent months, after slipping to a multi-year low towards the end of last year, reflects the trend reversal.
The government’s recommendations on tackling the issue of high drug prices and the revised regulation for approving new cancer drugs proved to be a dampener for the sector, and the impact is expected to linger. Big companies with a comfortable liquidity position could be at an advantage when it comes to maintaining growth, through investments and asset acquisitions.
Meanwhile, several drugmakers went public in recent months to take forward their growth plans, including Cortexyme (CRTX) and biotech major Moderna Therapeutics (MRNA).
Johnson & Johnson
Among the top players, Johnson and Johnson (NYSE: JNJ) stands out for its exceptionally good performance at the bourses, despite being battered by multiple litigations related to product safety, including the recent trial over the opioid crisis. Though the stock retreated rather quickly after hitting a record high last year, it recovered in the following weeks and is currently moving closer to the peak once again. The current market cap is around $355 billion.
The pharma division of the diversified consumer products giant has a rich product portfolio, covering a wide area – from immunology and neuroscience to vaccines and neuroscience. After a relatively poor show early last year, hurt by the unfavorable tax legislation, things improved later supported by the stable demand for the company’s popular drugs Zytiga and Stelara as well as the consumer products.
Though the stock retreated rather quickly after hitting a record high last year, it recovered in the following weeks
The stock, a favorite among investors for the solid dividend growth, is up 5% so far this year. The market’s bullish stance on the company’s earnings growth for the rest of the year, pegged at above 5%, shows the stock is poised to scale new heights in the coming months. Most analysts covering the stock recommend buy, with an average price target of around $150.
Merck & Co.
The shares of Merck & Co. (NYSE: MRK), another dividend company, have been tagged buy and outperform by research firms. The positive rating can be linked to the double-digit growth in return on equity in the last few years when the company registered significant earnings growth, though it trailed the market.
The more-than-a-century-old company, with strong fundamentals and an impressive portfolio, has been one of the best performing pharma stocks. While the growing generic competition and exclusivity issues remain a cause for concern, Merck’s revenues and earnings continue to benefit from its solid oncology portfolio. The stock, which hit a ten-year high a couple of months ago, is set to maintain the uptrend going forward, considering the broad pipeline that covers a range of health issues including refractory chronic cough, Ebola and chronic heart failure.
With a market cap of above $209 billion, Merck remains a prospective investment option. The market’s long-term outlook on the company’s earnings and revenue growth is positive.
Eli Lilly & Co.
Like its rivals, Eli Lilly & Company (NYSE: LLY) is well positioned to reap the benefit of the pipeline and new candidates. The long-term prospects of Lilly are brighter than those of its peers like Pfizer (PFE). Lilly’s leading products, including top-selling diabetes and oncology drugs, witnessed double-digit growth in the recent quarters, which helped the company emerge successful last year. However, the momentum was weakened to some extent by the loss of exclusivity on some of the leading formulations. The impact is expected to continue this year.
Lilly’s shares climbed to an all-time high in March and crossed the $130-mark. They remained elevated since then, but pared a part of the gain in the following days. The stock has gained 3% since the beginning of the year. The company got a boost this week after the FDA approved its migraine drug Emgality, and joined others like Teva Pharmaceutical (TEVA) and Amgen (AMGN) in the race for market share in the segment.
Analysts’ consensus rating on Lilly is hold, with an average price target of about $132, which represents a 12% upside from the current market value of about $109 billion.
New York-based Pfizer (NYSE: PFE) has been riding on the steady demand for its flagship influenza drug Prevnar 13. The company’s stock surged to a ten-year high towards the end of last year, reflecting the positive market sentiment over its impressive financial results. After descending from the highs modestly, the stock stabilized and is currently trading slightly above $40. According to the majority of analysts following Pfizer, the stock is a buy. The average target price is $47.
After securing regulatory approval for some key formulations both in the US and Europe, the company bets on the new therapy for progressive heart damage, which will be presented for the FDA’s approval this year. Also in the pipeline are Xtandi, Ibrance, and Xeljanz, being tested for additional indications.
Pfizer has been on an acquisition spree, the latest being the $810-million buyout of clinical-stage biotech Therachon last month, which is expected to drive overall growth this year and beyond. The company’s upbeat quarterly performance over the past two years, marked by consistent earnings and revenue growth, indicate the trend might continue in the forthcoming quarters.