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Although pharma and biotech stocks are facing challenges in the form of increasing focus on the high prices of drugs, a changing competitive scenario and mixed results, the sector’s fundamentals remain strong -- innovation, mergers and acquisitions (M&As), product approvals and positive data flow should act as catalysts.
M&As to Pick Pace?
The overall pharma industry has seen a lot of consolidation over the last few years, with quite a few deals being announced/completed in 2016. Expectations are high that M&As will increase as the year progresses -- potential tax reform and cash repatriation are expected to lead to a boost in this area. We could see several M&A agreements being announced in the coming quarters though companies are wary of bidding wars leading to over-priced deals.
Big players like Sanofi (SNY - Free Report) have expressed an interest in pursuing M&A deals. Allergan has also been very active on the acquisition and deal-making front. Industry bellwether Johnson & Johnson recently signed an agreement to acquire Actelion for approximately $30 billion. While some of these companies are looking to replace sales of blockbuster products that are facing loss of patent exclusivity, others are looking to build their pipelines both through acquisitions as well as licensing agreements.
Companies with innovative technologies and pipelines are highly sought after. Niche disease areas like nonalcoholic steatohepatitis (NASH), immuno-oncology and multiple sclerosis are in demand. Treatments for orphan diseases are also much sought after with quite a few deals being signed in these areas.
Innovative Pipelines & Catalyst Rich 2017
Pharma and biotech companies continue to work on bringing innovative new treatments to market, and there could be significant catalysts in the coming quarters in the form of important new product approvals as well as major data read-outs especially in important therapeutic areas like immuno-oncology, Alzheimer’s, hepatitis C virus (HCV), central nervous system disorders, and immunology/inflammation.
Among these, immuno-oncology has been attracting a lot of interest as these therapies have the potential to change the treatment paradigm for cancer -- they basically use the natural capability of the patient's own immune system to fight the disease. Major players in this field include Bristol-Myers, AstraZeneca, Merck (MRK - Free Report) and Roche.
Deals targeting immuno-oncology are being inked by companies like Pfizer (PFE - Free Report) , Merck KGaA, Bristol-Myers, AstraZeneca and Incyte. Companies like Kite are also advancing in this area. Interest in PARP inhibitors has also increased considerably as they could well be the next major class of therapeutics in oncology.
New Product Sales Should Ramp Up
Sales of products that gained approval over the last two years as well as line extensions should ramp up and boost growth. Some recently approved products with blockbuster potential include Amgen’s PCSK9 inhibitor, Repatha, Novartis’ (NVS - Free Report) psoriasis treatment, Cosentyx, and Pfizer’s cancer treatment, Ibrance. Cancer treatments like Kyprolis and Imbruvica should also bring in more sales thanks to label expansions.
The FDA approved 22 new drugs in 2016 including Zinplava (c. difficile infection), Lartruvo (soft tissue carcinoma), Exondys 51 (Duchenne muscular dystrophy), Epclusa (HCV), Ocaliva (rare, chronic liver disease), Zinbryta (multiple sclerosis), Tecentriq (urothelial cancer), Venclexta (chronic lymphocytic leukemia in patients with a specific chromosomal abnormality), Taltz (moderate-to-severe plaque psoriasis), Cinqair (severe asthma) and Zepatier (HCV) among others. The agency also expanded the label of cancer drugs like Kyprolis, Imbruvica and Xalkori.
Drug Approval Process to Speed Up?
At a meeting with pharma majors earlier this year, President Trump spoke about speeding up the FDA approval process. Last year, the number of new drug approvals slipped to 22, well below the 45 approvals in 2015 and 41 in 2014. The President said that the FDA will be streamlined and the drug approval process will be much faster. The recently signed 21st Century Cures Act is a step in this direction.
With the passing of this Act, expectations are that there will be more innovation in the sector and, maybe, a surge in new drug approvals. Some of the key drugs currently under FDA review with decisions expected in the next few months include Sanofi/Regeneron’s dupilumab (atopic dermatitis), AstraZeneca’s ZS-9, ARIAD’s brigatinib (cancer), Tesaro’s niraparib (cancer) and Lilly/Incyte’s investigational rheumatoid arthritis treatment, baricitinib.
Stock Picks
Although it may take a while for the dust around the drug pricing issue to settle down, pipeline success in innovative and important therapeutic areas, cost-cutting, share buybacks, new products, increased pipeline visibility and appropriate utilization of cash should help restore investor confidence in this sector.
Here are a few stocks that have been witnessing positive estimate revisions and carry a favorable Zacks Rank -- #1 (Strong Buy) or #2 (Buy).
GlaxoSmithKline plc (GSK - Free Report) : Glaxo’s earnings track record is pretty good, with the company surpassing expectations in three of the last four quarters with an average surprise of 11.03%. Earnings estimates are on the rise over the last 30 days with 2017 estimates up 3.8% while 2018 estimates are up 1.1%. Glaxo is a Zacks Rank #2 Stock. So far in 2017, the company has outperformed the Zacks categorized Large Cap Pharmaceuticals industry.
Celgene Corporation : Celgene, which has a pretty good earnings track record having delivered positive earnings surprises in three of the four quarters of 2016 with an average surprise of 5.1%, looks well-positioned for 2017. The company is witnessing positive estimate revisions for 2017 and 2018. Blood cancer treatment, Revlimid, is the key contributor to the top-line and continues to deliver impressive growth.
Moreover, the company has been diversifying its portfolio with other drugs like Pomalyst and Otezla -- both drugs crossed sales of $1 billion in 2016. Celgene has a rich and promising pipeline which represents upside potential. Celgene is a Zacks Rank #2 stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
Exelixis, Inc. (EXEL - Free Report) : Exelixis is focused on bringing cancer treatments to market. Approved products include Cabometyx (advanced kidney cancer), Cometriq (certain forms of thyroid cancer) and Cotellic (advanced melanoma). Cabometyx is experiencing rapid and broad uptake in the market with label expansion opportunities leaving room for upside. The Zacks Rank #2 stock has quite a few pipeline catalysts lined up for the coming quarters.
All said and done, the pharma sector’s fundamentals remain strong -- robust pipelines, innovative treatments, impressive results, growing demand for drugs especially for rare-to-treat diseases, an aging population and increased health care spending should support growth. To know more about this sector, check out our latest Pharma Industry Outlook.
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M&As, Pipeline Catalysts to Drive Pharma Sector
Although pharma and biotech stocks are facing challenges in the form of increasing focus on the high prices of drugs, a changing competitive scenario and mixed results, the sector’s fundamentals remain strong -- innovation, mergers and acquisitions (M&As), product approvals and positive data flow should act as catalysts.
M&As to Pick Pace?
The overall pharma industry has seen a lot of consolidation over the last few years, with quite a few deals being announced/completed in 2016. Expectations are high that M&As will increase as the year progresses -- potential tax reform and cash repatriation are expected to lead to a boost in this area. We could see several M&A agreements being announced in the coming quarters though companies are wary of bidding wars leading to over-priced deals.
Big players like Sanofi (SNY - Free Report) have expressed an interest in pursuing M&A deals. Allergan has also been very active on the acquisition and deal-making front. Industry bellwether Johnson & Johnson recently signed an agreement to acquire Actelion for approximately $30 billion. While some of these companies are looking to replace sales of blockbuster products that are facing loss of patent exclusivity, others are looking to build their pipelines both through acquisitions as well as licensing agreements.
Companies with innovative technologies and pipelines are highly sought after. Niche disease areas like nonalcoholic steatohepatitis (NASH), immuno-oncology and multiple sclerosis are in demand. Treatments for orphan diseases are also much sought after with quite a few deals being signed in these areas.
Innovative Pipelines & Catalyst Rich 2017
Pharma and biotech companies continue to work on bringing innovative new treatments to market, and there could be significant catalysts in the coming quarters in the form of important new product approvals as well as major data read-outs especially in important therapeutic areas like immuno-oncology, Alzheimer’s, hepatitis C virus (HCV), central nervous system disorders, and immunology/inflammation.
Among these, immuno-oncology has been attracting a lot of interest as these therapies have the potential to change the treatment paradigm for cancer -- they basically use the natural capability of the patient's own immune system to fight the disease. Major players in this field include Bristol-Myers, AstraZeneca, Merck (MRK - Free Report) and Roche.
Deals targeting immuno-oncology are being inked by companies like Pfizer (PFE - Free Report) , Merck KGaA, Bristol-Myers, AstraZeneca and Incyte. Companies like Kite are also advancing in this area. Interest in PARP inhibitors has also increased considerably as they could well be the next major class of therapeutics in oncology.
New Product Sales Should Ramp Up
Sales of products that gained approval over the last two years as well as line extensions should ramp up and boost growth. Some recently approved products with blockbuster potential include Amgen’s PCSK9 inhibitor, Repatha, Novartis’ (NVS - Free Report) psoriasis treatment, Cosentyx, and Pfizer’s cancer treatment, Ibrance. Cancer treatments like Kyprolis and Imbruvica should also bring in more sales thanks to label expansions.
The FDA approved 22 new drugs in 2016 including Zinplava (c. difficile infection), Lartruvo (soft tissue carcinoma), Exondys 51 (Duchenne muscular dystrophy), Epclusa (HCV), Ocaliva (rare, chronic liver disease), Zinbryta (multiple sclerosis), Tecentriq (urothelial cancer), Venclexta (chronic lymphocytic leukemia in patients with a specific chromosomal abnormality), Taltz (moderate-to-severe plaque psoriasis), Cinqair (severe asthma) and Zepatier (HCV) among others. The agency also expanded the label of cancer drugs like Kyprolis, Imbruvica and Xalkori.
Drug Approval Process to Speed Up?
At a meeting with pharma majors earlier this year, President Trump spoke about speeding up the FDA approval process. Last year, the number of new drug approvals slipped to 22, well below the 45 approvals in 2015 and 41 in 2014. The President said that the FDA will be streamlined and the drug approval process will be much faster. The recently signed 21st Century Cures Act is a step in this direction.
With the passing of this Act, expectations are that there will be more innovation in the sector and, maybe, a surge in new drug approvals. Some of the key drugs currently under FDA review with decisions expected in the next few months include Sanofi/Regeneron’s dupilumab (atopic dermatitis), AstraZeneca’s ZS-9, ARIAD’s brigatinib (cancer), Tesaro’s niraparib (cancer) and Lilly/Incyte’s investigational rheumatoid arthritis treatment, baricitinib.
Stock Picks
Although it may take a while for the dust around the drug pricing issue to settle down, pipeline success in innovative and important therapeutic areas, cost-cutting, share buybacks, new products, increased pipeline visibility and appropriate utilization of cash should help restore investor confidence in this sector.
Here are a few stocks that have been witnessing positive estimate revisions and carry a favorable Zacks Rank -- #1 (Strong Buy) or #2 (Buy).
GlaxoSmithKline plc (GSK - Free Report) : Glaxo’s earnings track record is pretty good, with the company surpassing expectations in three of the last four quarters with an average surprise of 11.03%. Earnings estimates are on the rise over the last 30 days with 2017 estimates up 3.8% while 2018 estimates are up 1.1%. Glaxo is a Zacks Rank #2 Stock. So far in 2017, the company has outperformed the Zacks categorized Large Cap Pharmaceuticals industry.
Celgene Corporation : Celgene, which has a pretty good earnings track record having delivered positive earnings surprises in three of the four quarters of 2016 with an average surprise of 5.1%, looks well-positioned for 2017. The company is witnessing positive estimate revisions for 2017 and 2018. Blood cancer treatment, Revlimid, is the key contributor to the top-line and continues to deliver impressive growth.
Moreover, the company has been diversifying its portfolio with other drugs like Pomalyst and Otezla -- both drugs crossed sales of $1 billion in 2016. Celgene has a rich and promising pipeline which represents upside potential. Celgene is a Zacks Rank #2 stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
Exelixis, Inc. (EXEL - Free Report) : Exelixis is focused on bringing cancer treatments to market. Approved products include Cabometyx (advanced kidney cancer), Cometriq (certain forms of thyroid cancer) and Cotellic (advanced melanoma). Cabometyx is experiencing rapid and broad uptake in the market with label expansion opportunities leaving room for upside. The Zacks Rank #2 stock has quite a few pipeline catalysts lined up for the coming quarters.
All said and done, the pharma sector’s fundamentals remain strong -- robust pipelines, innovative treatments, impressive results, growing demand for drugs especially for rare-to-treat diseases, an aging population and increased health care spending should support growth. To know more about this sector, check out our latest Pharma Industry Outlook.
8 Stocks with Huge Profit Potential
Just released: Driverless Cars: Your Roadmap to Mega-Profits Today. In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>