The drug and biotech sector has shown encouraging signs of recovery in 2026, driven by strong quarterly performances, optimistic full-year outlooks, robust pipeline activity and a flurry of M&A deals. However, it faces its share of headwinds like slower-than-expected launches of newer therapies, looming patent expirations for several blockbuster drugs and ongoing policy and pricing uncertainty in major markets. Competitive pressure, particularly in fast-growing areas like obesity and cancer treatments, also remains intense.

Despite these headwinds, the industry’s continued emphasis on innovation, advanced drug development technologies and favorable clinical and regulatory developments supports a constructive long-term outlook. Large pharmaceutical companies, in particular, continue to benefit from diversified product portfolios, strong cash generation, and stable profitability, making them relatively defensive investments and attractive long-term holdings during periods of broader market volatility.

Among the large drugmakers, Eli Lilly (LLY Quick QuoteLLY - Free Report) , Johnson & Johnson (JNJ Quick QuoteJNJ - Free Report) , Novo Nordisk (NVO Quick QuoteNVO - 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 several 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 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 ofdollars 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 in 2026 after a lull in the past couple of years.

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.

Some key recent deals include Merck’s acquisition of Terns Pharmaceuticals, Gilead’s acquisition of Tubulis, Biogen’s acquisition of Apellis Pharmaceuticals and Lilly’s acquisition of Centessa Pharmaceuticals, among others.

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 concerns around U.S. fiscal sustainability, 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 Bullish Outlook

The Zacks Large Cap Pharmaceuticals industryis 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 #80, which places it in the top 33% 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 but underperformed the S&P 500 in the past year.

Stocks in this industry have collectively risen 26.6% in the past year compared with the Zacks Medical Sector’s increase of 5.6%. The Zacks S&P 500 composite has risen 30.3% in the said time frame.

One Year 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 17.44X compared with the S&P 500’s 22.06X and the Zacks Medical Sector's 20.02X.

Over the last five years, the industry has traded as high as 20.80X, as low as 13.09X and at a median of 16.74X, as the chart below shows.

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

4 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, making up for the decline in sales of oral anticoagulant Xarelto due to patent expiration. Bayer is also working to expand the labels of Nubeqa and Kerendia, which, if successful, can further drive growth.

Multiple high-impact launches across oncology, cardiology, and women’s health further extend the pharma division’s growth runway. Some key drug new drug approvals are Lynkuet (elinzanetant) for moderate-to-severe vasomotor symptoms (VMS) associated with menopause and Hyrnuo (sevabertinib) for HER2-mutant non-small cell lung cancer. Bayer is making good pipeline progress.  The company has expanded its pipeline in new modalities of cell therapy through the acquisition of BlueRock and in gene therapy through the AskBio buyout. 

However, ongoing glyphosate litigation linked to Monsanto’s Roundup remains a major financial burden, while weakness in the Crop Science business persists.

This Zacks Rank #1 (Strong Buy) company’s shares have risen 56.7% in the past year. Estimates for its 2026 earnings per share have risen from $1.20 to $1.26 over the past 60 days.

Price and Consensus: BAYRY

Eli Lilly:  Lilly has seen tremendous success with its popular GLP-1 drugs, Mounjaro for type II diabetes and Zepbound for obesity. Despite a short time on the market, Mounjaro and Zepbound have become key top-line drivers for Lilly, with demand rising rapidly. These therapies account for more than 60% of the company’s total revenues.

In addition to Mounjaro and Zepbound, Lilly has secured approvals for several other new therapies over the past few years. These include Omvoh, Jaypirca, Ebglyss and Kisunla. These newly approved drugs are also contributing to Lilly’s revenue growth.

Lilly is developing several next-generation, more powerful and more convenient GLP-1–based treatments, including oral options and multi-acting candidates. In early April 2026, Lilly gained FDA approval for its once-daily oral GLP-1 pill Foundayo (orforglipron) for treating obesity. Foundayo, which offers the benefits of GLP-1 therapy in a pill form, can prove to be a commercial game-changer for Lilly. Foundayo’s early launch uptake has been encouraging.

In the past couple of years, Lilly upped its efforts to diversify beyond GLP-1 drugs by expanding into cardiovascular, oncology and neuroscience areas. So far in 2026, it has already announced six proposed acquisitions.

Lilly has its share of problems. Prices of most of Lilly’s products are declining in the United States.  Price is expected to continue to be a drag on top-line growth in the low to mid-teens percentage in 2026. Rising competition in the GLP-1 diabetes/obesity market is a key headwind. Also, sales of late-life cycle products like Trulicity, Taltz and Verzenio are expected to be flat to down in 2026.

Lilly has a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here

The stock has risen 46.9% in the past year. Estimates for Eli Lilly’s 2026 earnings have improved from $34.74 per share to $35.45 per share in the past 60 days.

Price and Consensus: LLY

 

J&J: J&J’s biggest strength is its diversified business model, as it operates through pharmaceuticals and medical devices divisions. It has more than 275 subsidiaries and boasts 28 platforms or products with more than $1 billion in annual sales, with the aim of adding even more.

J&J’s Innovative Medicine unit is showing a growth trend. The segment’s sales rose 5.6% on an organic basis in the first quarter of 2026 despite the loss of exclusivity (LOE) of the blockbuster drug, Stelara, in 2025. Growth was 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 improved in the past four quarters.

J&J also rapidly advanced its pipeline in the past year, attaining significant clinical and regulatory milestones that will help drive growth through the back half of the decade. In 2025, J&J invested more than $32 billion in R&D and M&A, including the acquisitions of Intra-Cellular Therapies and Halda Therapeutics. Backed by regular pipeline success, J&J expects a more pronounced impact from new products in 2026 than in 2025.

J&J expects 2026 to be a year of accelerated growth. The company expects both its Innovative Medicines and MedTech segments to deliver stronger growth this year. The company is confident that it can achieve its target of generating around $100 billion in revenues in 2026. It expects sales to continue to improve in 2027, with a “line of sight” to double-digit growth by the end of the decade.

Despite headwinds like the legal battle surrounding its talc lawsuits, the Stelara patent cliff, the upcoming LOE of key drugs Opsumit and Simponi and softness in MedTech China, 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 52.9% in the past year. The Zacks Consensus Estimate for 2026 earnings has risen from $11.54 per share to $11.57 per share over the past 60 days.

Price and Consensus: JNJ

 

Novo Nordisk: Novo Nordisk’s growth continues to be powered by its semaglutide-based portfolio, including Ozempic and Rybelsus for type II diabetes (T2D), and Wegovy for chronic weight management. Strong demand for Wegovy and Ozempic, along with an encouraging early launch contribution from its new oral GLP-1 Wegovy pill, helped it deliver stronger-than-expected first-quarter 2026 results. Novo Nordisk also modestly raised its 2026 outlook, signaling that management may be regaining control following months of slowing-growth concerns.

The company now expects adjusted sales and operating profit to decline 4-12% at CER in 2026 versus its earlier forecast of a 5-13% decline, supported by rising GLP-1 demand, especially in obesity care, broader treatment adoption and continued Wegovy launches in new markets. To strengthen its competitive position, Novo Nordisk is rapidly expanding its product portfolio and label opportunities. Novo Nordisk also continues to advance multiple next-generation obesity and diabetes candidates to reinforce its long-term growth outlook. Beyond its GLP-1 portfolio, Novo Nordisk is broadening its presence in rare diseases. However, NVO continues to face its share of headwinds like pricing pressure in the United States, gradual semaglutide exclusivity losses in certain markets, reduced Medicaid obesity coverage and intensifying competition from Lilly.

Novo Nordisk has a Zacks Rank #3 at present. The Zacks Consensus Estimate for the Danish drugmaker’s 2026 EPS has risen from $3.35 to $3.46 over the past 60 days. The stock has declined 36.2% in the past year.

Price and Consensus: NVO