The sky-high tariffs imposed by the United States and retaliatory tariffs by China and some other countries hurt global stock markets in April. With the massive tariffs imposed by the United States and China currently on a pause, the markets recovered slightly. However, this is only a temporary suspension. The uncertainty around tariffs and trade production measures remains, which has muted economic growth.

However, amid the broader macro uncertainty, the drug and biotech sector seems to have recovered in the past month, backed by positive pipeline and regulatory developments. Innovation is at its peak with key spaces like rare diseases, next-generation oncology treatments, obesity, immunology and neuroscience attracting investor attention. M&A activity also remains healthy.
Regular pipeline setbacks, slow ramp-up of newer drugs, patent cliffs, regulatory risks and broader market concerns related to the economy are some of the headwinds for the sector. Nonetheless, large drugmakers have several robust revenue streams and are mostly profitable companies, making them safe havens for investments.

Among the large drugmakers, AbbVie (ABBV Quick QuoteABBV - Free Report) , Novartis (NVS Quick QuoteNVS - Free Report) , Pfizer (PFE Quick QuotePFE - Free Report) , Sanofi (SNY Quick QuoteSNY - Free Report) and Bayer (BAYRY Quick QuoteBAYRY - Free Report) are worth retaining in one’s portfolio.

Industry Description

The Zacks Large Cap Pharmaceuticals industry comprises some of the largest global companies that develop multi-million-dollar drugs for a broad range of therapeutic areas, like neuroscience, cardiovascular and metabolism, rare diseases, immunology and oncology. Some of these companies also make vaccines, animal health products, medical devices and consumer-related healthcare products. They invest millions of dollars in their product pipelines and line extensions of their already-marketed drugs. Continuous innovation is a defining characteristic of pharma companies, and these large drugmakers are constantly investing in drug development and the discovery of new medicines. Regular mergers and acquisitions, and collaboration deals are other key features of large drugmakers.

What's Shaping the Future of the Large-Cap Pharma Industry?

Innovation and Pipeline Success: For big drugmakers, an innovative pipeline is a competitive necessity and key to top-line growth. Pharma companies are continually striving to ramp up innovation and allocate a significant portion of their revenues to R&D. Several drugmakers are embracing AI technology to accelerate the drug discovery process for delivering more effective therapies. Successful innovation and product line extensions in key therapeutic areas, along with strong clinical study results, may serve as important catalysts for these stocks.

Aggressive M&A & Collaboration Activity: The sector is characterized by aggressive M&A activities. Given that it takes several years and millions of dollars to develop new therapeutics from scratch, large pharmaceutical companies, sitting on substantial cash reserves, regularly acquire innovative small and mid-cap biotech companies to expand their pipelines.

Also, sloppy sales of mature drugs, dwindling in-house pipelines, government scrutiny of drug prices and the growing use of AI for drug discovery whet the M&A appetite of large drugmakers. Moreover, collaborations and partnerships with smaller companies are in full swing. Fast-growing and lucrative markets such as oncology, rare disease and cell and gene therapy are likely to remain focus areas for M&A activities. Recently, areas such as obesity and inflammatory bowel disease have been attracting buyout interest.

An important M&A deal announced recently was Sanofi’s offer to acquire Blueprint Medicines for approximately $9.5 billion. M&A activity is expected to remain rampant through the rest of the year.

Pipeline Setbacks & Other Headwinds: The failure of key pipeline candidates in pivotal studies and regulatory and pipeline delays can be setbacks for large drug companies and significantly hurt their share prices. Other headwinds for the industry include pricing and competitive pressure, generic competition for blockbuster treatments, a slowdown in sales of some of the most high-profile older drugs, Medicare drug price negotiations and increasing FTC scrutiny of M&A deals.

Macroeconomic Uncertainty: Uncertain macroeconomic conditions, including the risk of inflation, fluctuating interest rates and instability in the financial system, along with escalating geopolitical tensions in various parts of the world, have increased broader economic woes. Uncertainties around tariffs also remain a headwind.

Zacks Industry Rank Indicates a Bright Outlook

The Zacks Large Cap Pharmaceuticals industry is an 11-stock group within the broader Medical sector. The group’s Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.

The Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #36, which places it in the top 15% of 245 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few large drug stocks that are well-positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s performance and its current valuation.

Industry Versus S&P 500 & Sector

The industry has outpaced the Zacks Medical Sector as well as the S&P 500 year to date.

Stocks in this industry have collectively risen 3.9% so far this year against the Zacks Medical Sector’s decline of 1.5%. The Zacks S&P 500 composite has risen 1.7%.

YTD Price Performance

Industry's Current Valuation

Based on the forward 12-month price-to-earnings (P/E), a commonly used multiple for valuing large pharma companies, the industry is currently trading at 15.65X compared with the S&P 500’s 21.89X and the Zacks Medical Sector's 19.31X.

Over the last five years, the industry has traded as high as 20.80X, as low as 12.92X and at a median of 15.65X, as the chart below shows.

Forward 12-Month Price-to-Earnings (P/E) Ratio

5 Large Drugmakers to Watch

Bayer: The company’s key drugs, Nubeqa for cancer and Kerendia for chronic kidney disease associated with type II diabetes, are fueling growth in its Pharmaceuticals division. Bayer is also working to expand the labels of Nubeqa and Kerendia, which, if successful, can further drive growth.

The company also plans to launch two new drugs in 2025, which are elinzanetant, a hormone-free treatment for menopause symptoms, and ceramides, a drug for the treatment of a certain form of heart disease. The Consumer Health segment also improved in 2024 due to the launch of new products, which should keep the momentum in 2025. However, sales in the Crop Science division declined significantly in the past couple of years due to lower volumes and prices for glyphosate-based products.

This Zacks Rank #2 (Buy) company’s shares have risen 61.9% so far this year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estimates for its 2025 earnings per share have increased from $1.19 to $1.25 over the past 60 days.

Price and Consensus: BAYRY

 

Pfizer: It is one of the largest and most successful drugmakers in the field of oncology. The company’s position in oncology was strengthened with the addition of Seagen in 2023. Though COVID revenues are declining, its non-COVID operational revenues are improving, driven by its key in-line products like Vyndaqel, Padcev and Eliquis, new launches and newly acquired products like Nurtec and those from Seagen.

Pfizer faces its share of challenges, the key being declining sales of its COVID-19 products. It also expects a significant impact from the loss of patent exclusivity in the 2026-2030 period, as several of its key products may face patent expirations. The Medicare Part D redesign under the Inflation Reduction Act (IRA) is also expected to negatively impact sales of Pfizer’s higher-priced drugs, such as Vyndaqel, Ibrance, Xtandi and Xeljanz,in 2025.

However, as COVID-related uncertainties dwindle, its revenue volatility is also declining. The company’s non-COVID drugs and contribution from new and newly acquired products should continue to drive top-line growth in 2025. Also, Pfizer expects cost cuts and internal restructuring to deliver savings of at least $6.0 billion. Continued growth in non-COVID sales and significant cost-reduction measures should drive profit growth.

Pfizer has a Zacks Rank #2 at present. The Zacks Consensus Estimate for 2025 EPS has risen from $2.98to $3.06 per share over the past 60 days. The stock has lost 4.2% year to date.

Price and Consensus: PFE

Novartis: With the separation of Sandoz, Novartis has become a pure-play pharmaceutical company.  Novartis maintains strong momentum on the back of a strong and diverse portfolio with drugs like Kisqali, Kesimpta, Pluvicto and Leqvio. The uptake of Pluvicto and Scemblix has been outstanding and should propel top-line growth. Approval of new drugs and label expansion of existing drugs should enable Novartis to offset the adverse impacts of the generic competition of key drugs. Novartis is also looking to solidify its presence in the promising gene therapy space. The recent spate of acquisitions and collaborations has strengthened its pipeline. However, generic erosion of some drugs and recent pipeline setbacks are a concern.

Novartis has a Zacks Rank #2 at present. The Zacks Consensus Estimate for this Swiss drugmaker’s 2025 EPS has risen from $8.46 to $8.74 over the past 60 days. The stock has risen 25.6% so far this year.

Price and Consensus: NVS

 

AbbVie:  It has successfully navigated the loss of exclusivity (LOE) of its blockbuster drug, Humira, by launching two other successful new immunology medicines, Skyrizi and Rinvoq, which are performing extremely well, bolstered by approvals in new indications and should support top-line growth in the next few years.

AbbVie expects to return to robust revenue growth in 2025, which is just the second year following the U.S. Humira LOE, driven by its ex-Humira platform.

Boosted by its new product launches, AbbVie expects to return to robust mid-single-digit revenue growth in 2025 with a high single-digit CAGR through 2029, as it has no significant LOE event for the rest of this decade. Strong sales performance of drugs like Rinvoq, Skyrizi, Venclexta and Vraylar, coupled with significant contributions from newer drugs like Ubrelvy, Elahere, Epkinly and Qulipta, should keep driving the company’s top line.

AbbVie has several early/mid-stage pipeline candidates with blockbuster potential. The company expects several regulatory submissions, approvals and key data readouts in the next 12 months. The company has been on an acquisition spree in the past couple of years, which is strengthening its pipeline.

AbbVie has a Zacks Rank #3 (Hold) at present. The stock has risen 9.5% year to date. The Zacks Consensus Estimate for 2025 earnings has remained stable at $12.28 per share over the past 60 days.

Price and Consensus: ABBV

Sanofi:  Dupixent has become the key top-line driver for Sanofi as it enjoys strong demand across all approved indications and geographies. New uses, increased penetration in approved indications and further geographic expansion are expected to drive Dupixent’s sales in future quarters.

Sanofi possesses a leading vaccine portfolio, which drives the top line. Several new drugs were launched in the past couple of years that have become significant contributors to Sanofi's accelerated top-line growth profile. Sanofi increased R&D investments and achieved significant progress with its pipeline in 2024. It has also been active on the M&A front. However, generic erosion of Aubagio in all key markets and lower sales from mature products are hurting sales. Other headwinds include the weak sales of influenza vaccines and regular negative pipeline developments.

Sanofi has a Zacks Rank #3 at present. The stock has risen 6.3% year to date. The Zacks Consensus Estimate for 2025 EPS has risen from $4.43 to $4.56 over the past 60 days.

Price and Consensus: SNY