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3 Large Drug Stocks to Watch as the Industry Shows Some Recovery
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The drug and biotech sector has recovered in the past couple of months after remaining muted for most of this year. The recovery began with large drugmakers like Pfizer and AstraZeneca signing drug pricing agreements with the Trump administration. Both offered to cut prescription drug prices and boost domestic investments in exchange for a three-year exemption from tariffs on pharmaceutical imports. Eli Lilly (LLY - Free Report) and Novo Nordisk also signed similar deals with President Trump to cut prices of their respective GLP-1 therapies for obesity, Zepbound and Wegovy, in exchange for Medicare access for the drugs and athree-year exemption from tariffs on pharmaceutical imports.
The industry, however, faces its share of headwinds like regular pipeline setbacks, slow ramp-up of newer drugs, patent cliffs and regulatory risks. Despite the headwinds, the industry’s focus on innovation and positive pipeline/regulatory developments signals a favorable long-term outlook. A rebound in mergers and acquisitions (M&A) has also increased investor confidence in the industry. Overall, large drugmakers have several robust revenue streams and are mostly profitable companies, making them safe havens for long-term investment.
Among the large drugmakers, Eli Lilly, Johnson & Johnson (JNJ - Free Report) and Sanofi (SNY - 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 in their product pipelines and line extensions of their already-marketed drugs. Continuous innovation is a defining characteristic of large pharma companies. They constantly invest 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. Drugmakers are integrating artificial intelligence (AI) to accelerate the drug discovery process for delivering more effective therapies. New technologies, such as gene editing, mRNA vaccines, precision medicine and next-generation sequencing, are revolutionizing the drug and biotech industries.
Innovation is at its peak with key spaces like rare diseases, next-generation oncology treatments, obesity, immunology and neuroscience attracting investor attention.
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. M&A activity has shot up after remaining muted in the first half of 2025.
Fast-growing and lucrative markets such as oncology, rare disease and gene therapy are focus areas for M&A activities. Recently, areas such as obesity and inflammatory bowel disease have been attracting buyout interest.
Pfizer, Novo Nordisk and Roche recently announced multi-billion-dollar deals targeting the fast-growing, lucrative metabolic and obesity-related disease space.
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, a slowing labor market and instability in the financial system, along with escalating geopolitical tensions in various parts of the world, have increased broader economic woes.
Uncertainty around tariffs and trade protection measures in the United States remains. President Trump has threatened to impose a 100% tariff on pharmaceutical imports unless a company builds pharmaceutical plants in the United States. Trump’s repeated threats to impose tariffs on pharmaceutical imports are aimed at pushing American pharma companies to shift pharmaceutical production back to the United States, primarily from European and Asian countries.
Zacks Industry Rank Indicates a Dull 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 #185, which places it in the bottom 24% of 243 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 but underperformed the S&P 500 year to date.
Stocks in this industry have collectively risen 15.6% so far this year compared with the Zacks Medical Sector’s increase of 6.3%. The Zacks S&P 500 composite has risen 18.5% in the said time frame.
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 16.91X compared with the S&P 500’s 23.44X and the Zacks Medical Sector's 20.99X.
Over the last five years, the industry has traded as high as 20.80X, as low as 13.09X and at a median of 15.99X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Large Drugmakers to Watch
Eli Lilly: It has seen tremendous success with its popular tirzepatide medicines, diabetes drug Mounjaro and weight loss medicine, Zepbound.
Despite being on the market for only around three years, Mounjaro and Zepbound have become key top-line drivers for Lilly, with demand rising rapidly. Launches of Mounjaro and Zepbound in new international markets and improved supply from ramped-up production in the United States have led to strong sales growth in 2025. Mounjaro and Zepbound are expected to continue to see strong demand in 2026. Lilly’s other new drugs, like Kisunla, Omvoh and Jaypirca, are also contributing to its top-line growth.
Lilly is investing broadly in obesity with key pipeline candidates being orforglipron, an oral GLP-1 small molecule, and retatrutide, a GGG tri-agonist. Lilly has announced positive data across six studies on orforglipron in obesity and type II diabetes. An oral pill like orforglipron has the potential to be a more convenient alternative to popular injectable treatments like Zepbound and NVO’sWegovy. Lilly plans to file regulatory applications for orforglipron in obesity later this year, setting up the timeline for a potential launch next year.
LLY is also working to diversify beyond GLP-1 drugs by expanding into cardiovascular, oncology, and neuroscience areas. In 2025, it announced several M&A deals to strengthen its pipeline.
The company has its share of problems. Prices of most of Lilly’s products are declining in the United States. Potential competition in the GLP-1 diabetes/obesity market is a key headwind.
It has risen 33.8% year to date. Estimates for Eli Lilly’s 2026 earnings have improved from $30.84 per share to $33.36 per share in the past 60 days.
Price and Consensus: LLY
J&J: Its Innovative Medicine unit is showing a growth trend. The segment’s sales rose 3.4% in the first nine months of 2025 on an organic basis despite the loss of exclusivity (LOE) of its multi-billion-dollar product, Stelara, and the negative impact of the Part D redesign. Growth is being driven by J&J’s key drugs like Darzalex, Erleada and Tremfya. New drugs like Carvykti, Tecvayli, Talvey, Rybrevant and Spravato also contributed significantly to growth.
J&J’s MedTech business has also improved in the past two quarters. The pending separation of its Orthopaedics franchise in the MedTech segmentshould improve its MedTech unit’s growth and margins, as the Orthopaedics franchise has been a slow-growth business for J&J.
The company has rapidly advanced its pipeline this year, attaining significant clinical and regulatory milestones that will help drive growth through the back half of the decade. J&J has also been on an acquisition spree, with the acquisition of Intra-Cellular Therapies this year strengthening its presence in the neurological and psychiatric drug market.
It expects operational sales growth in both the Innovative Medicine and MedTech segments to be higher in 2026. However, weak sales of MedTech in China, the Stelara patent cliff, the impact of Part D redesign and the legal battle surrounding its talc lawsuits are significant headwinds. J&J looks quite confident that it will be able to navigate these challenges.
J&J has a Zacks Rank #3 at present.
The stock has risen 41.9% year to date. The Zacks Consensus Estimate for 2026 earnings has risen from $11.38 per share to $11.48 per share over the past 60 days.
Price and Consensus: JNJ
Sanofi: Its immunology drug Dupixent is a key top-line driver as it enjoys strong demand across all approved indications and geographies.Sanofi possesses a leading vaccine portfolio. Its Vaccines unit has delivered mid-to high-single-digit sales growth since 2018. 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 also has a strong immunology and neuro-inflammation pipeline, which includes some potential blockbuster assets in phase III development/under registration, including amlitelimab, frexalimab and tolebrutinib. It has also been active on the M&A front.
However, the generic erosion of Aubagio in all key markets, lower sales from mature products, competitive pressure on influenza vaccines and regular pipeline setbacks are key headwinds.
Sanofi has a Zacks Rank #3 at present. The Zacks Consensus Estimate for this France-based drugmaker’s 2026 EPS has declined from $4.96 per share to $4.89 per share over the past 60 days. The stock has risen 3.0% so far this year.
Price and Consensus: SNY
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3 Large Drug Stocks to Watch as the Industry Shows Some Recovery
The drug and biotech sector has recovered in the past couple of months after remaining muted for most of this year. The recovery began with large drugmakers like Pfizer and AstraZeneca signing drug pricing agreements with the Trump administration. Both offered to cut prescription drug prices and boost domestic investments in exchange for a three-year exemption from tariffs on pharmaceutical imports. Eli Lilly (LLY - Free Report) and Novo Nordisk also signed similar deals with President Trump to cut prices of their respective GLP-1 therapies for obesity, Zepbound and Wegovy, in exchange for Medicare access for the drugs and athree-year exemption from tariffs on pharmaceutical imports.
The industry, however, faces its share of headwinds like regular pipeline setbacks, slow ramp-up of newer drugs, patent cliffs and regulatory risks. Despite the headwinds, the industry’s focus on innovation and positive pipeline/regulatory developments signals a favorable long-term outlook. A rebound in mergers and acquisitions (M&A) has also increased investor confidence in the industry. Overall, large drugmakers have several robust revenue streams and are mostly profitable companies, making them safe havens for long-term investment.
Among the large drugmakers, Eli Lilly, Johnson & Johnson (JNJ - Free Report) and Sanofi (SNY - 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 in their product pipelines and line extensions of their already-marketed drugs. Continuous innovation is a defining characteristic of large pharma companies. They constantly invest 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. Drugmakers are integrating artificial intelligence (AI) to accelerate the drug discovery process for delivering more effective therapies. New technologies, such as gene editing, mRNA vaccines, precision medicine and next-generation sequencing, are revolutionizing the drug and biotech industries.
Innovation is at its peak with key spaces like rare diseases, next-generation oncology treatments, obesity, immunology and neuroscience attracting investor attention.
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. M&A activity has shot up after remaining muted in the first half of 2025.
Fast-growing and lucrative markets such as oncology, rare disease and gene therapy are focus areas for M&A activities. Recently, areas such as obesity and inflammatory bowel disease have been attracting buyout interest.
Pfizer, Novo Nordisk and Roche recently announced multi-billion-dollar deals targeting the fast-growing, lucrative metabolic and obesity-related disease space.
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, a slowing labor market and instability in the financial system, along with escalating geopolitical tensions in various parts of the world, have increased broader economic woes.
Uncertainty around tariffs and trade protection measures in the United States remains. President Trump has threatened to impose a 100% tariff on pharmaceutical imports unless a company builds pharmaceutical plants in the United States. Trump’s repeated threats to impose tariffs on pharmaceutical imports are aimed at pushing American pharma companies to shift pharmaceutical production back to the United States, primarily from European and Asian countries.
Zacks Industry Rank Indicates a Dull 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 #185, which places it in the bottom 24% of 243 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 but underperformed the S&P 500 year to date.
Stocks in this industry have collectively risen 15.6% so far this year compared with the Zacks Medical Sector’s increase of 6.3%. The Zacks S&P 500 composite has risen 18.5% in the said time frame.
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 16.91X compared with the S&P 500’s 23.44X and the Zacks Medical Sector's 20.99X.
Over the last five years, the industry has traded as high as 20.80X, as low as 13.09X and at a median of 15.99X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Large Drugmakers to Watch
Eli Lilly: It has seen tremendous success with its popular tirzepatide medicines, diabetes drug Mounjaro and weight loss medicine, Zepbound.
Despite being on the market for only around three years, Mounjaro and Zepbound have become key top-line drivers for Lilly, with demand rising rapidly. Launches of Mounjaro and Zepbound in new international markets and improved supply from ramped-up production in the United States have led to strong sales growth in 2025. Mounjaro and Zepbound are expected to continue to see strong demand in 2026. Lilly’s other new drugs, like Kisunla, Omvoh and Jaypirca, are also contributing to its top-line growth.
Lilly is investing broadly in obesity with key pipeline candidates being orforglipron, an oral GLP-1 small molecule, and retatrutide, a GGG tri-agonist. Lilly has announced positive data across six studies on orforglipron in obesity and type II diabetes. An oral pill like orforglipron has the potential to be a more convenient alternative to popular injectable treatments like Zepbound and NVO’sWegovy. Lilly plans to file regulatory applications for orforglipron in obesity later this year, setting up the timeline for a potential launch next year.
LLY is also working to diversify beyond GLP-1 drugs by expanding into cardiovascular, oncology, and neuroscience areas. In 2025, it announced several M&A deals to strengthen its pipeline.
The company has its share of problems. Prices of most of Lilly’s products are declining in the United States. Potential competition in the GLP-1 diabetes/obesity market is a key headwind.
The stock has a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It has risen 33.8% year to date. Estimates for Eli Lilly’s 2026 earnings have improved from $30.84 per share to $33.36 per share in the past 60 days.
Price and Consensus: LLY
J&J: Its Innovative Medicine unit is showing a growth trend. The segment’s sales rose 3.4% in the first nine months of 2025 on an organic basis despite the loss of exclusivity (LOE) of its multi-billion-dollar product, Stelara, and the negative impact of the Part D redesign. Growth is being driven by J&J’s key drugs like Darzalex, Erleada and Tremfya. New drugs like Carvykti, Tecvayli, Talvey, Rybrevant and Spravato also contributed significantly to growth.
J&J’s MedTech business has also improved in the past two quarters. The pending separation of its Orthopaedics franchise in the MedTech segmentshould improve its MedTech unit’s growth and margins, as the Orthopaedics franchise has been a slow-growth business for J&J.
The company has rapidly advanced its pipeline this year, attaining significant clinical and regulatory milestones that will help drive growth through the back half of the decade. J&J has also been on an acquisition spree, with the acquisition of Intra-Cellular Therapies this year strengthening its presence in the neurological and psychiatric drug market.
It expects operational sales growth in both the Innovative Medicine and MedTech segments to be higher in 2026. However, weak sales of MedTech in China, the Stelara patent cliff, the impact of Part D redesign and the legal battle surrounding its talc lawsuits are significant headwinds. J&J looks quite confident that it will be able to navigate these challenges.
J&J has a Zacks Rank #3 at present.
The stock has risen 41.9% year to date. The Zacks Consensus Estimate for 2026 earnings has risen from $11.38 per share to $11.48 per share over the past 60 days.
Price and Consensus: JNJ
Sanofi: Its immunology drug Dupixent is a key top-line driver as it enjoys strong demand across all approved indications and geographies.Sanofi possesses a leading vaccine portfolio. Its Vaccines unit has delivered mid-to high-single-digit sales growth since 2018. 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 also has a strong immunology and neuro-inflammation pipeline, which includes some potential blockbuster assets in phase III development/under registration, including amlitelimab, frexalimab and tolebrutinib. It has also been active on the M&A front.
However, the generic erosion of Aubagio in all key markets, lower sales from mature products, competitive pressure on influenza vaccines and regular pipeline setbacks are key headwinds.
Sanofi has a Zacks Rank #3 at present. The Zacks Consensus Estimate for this France-based drugmaker’s 2026 EPS has declined from $4.96 per share to $4.89 per share over the past 60 days. The stock has risen 3.0% so far this year.
Price and Consensus: SNY