The years 2021 and 2020 were probably the ones in which the drug and biotech sectors were the most in the limelight than any other year in the past decade. The pharma, biotech and medical devices companies played a vital role in 2021 by bringing the pandemic slightly under control through the development of vaccines, diagnostic tests and medicines/antibodies to treat COVID-19. The vaccines allowed global economies to recover, to some extent.

Overall, the sector was driven by pipeline success, mostly related to COVID products, cancer, rare diseases, gene therapy, and editing and mRNA vaccines. Strong quarterly results, new product launches, frequent M&A activity also contributed to the sector’s growth in 2021.

However, the pandemic is not over yet and we are still living on a daily basis with the ravages of COVID, especially with the emergence of the highly contagious Omicron variant of the virus. The drug/biotech and medical device companies will continue to remain in the spotlight in 2022.

Among the large drugmakers, stocks of Pfizer (PFE Quick QuotePFE - Free Report) and Eli Lilly (LLY Quick QuoteLLY - Free Report) rose significantly in 2021 in response to their pipeline progress.

While Pfizer’s stock is up 67% this year so far, Lilly’s stock has risen 61.5% compared with an increase of 25.6% for the industry.

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Here we discuss the factors that drove these stocks this year and whether the momentum can be sustained in 2022.

Pfizer

Pfizer has been riding high on the success of its two-shot vaccine for COVID-19, Comirnaty, which it developed in partnership with Germany-based company, BioNTech (BNTX Quick QuoteBNTX - Free Report) . The vaccine was developed in record time and is now approved for emergency/temporary in several countries worldwide and fully approved in the United States.

Pfizer and BioNTech have already shipped 2 billion doses to 152 countries. They expect to manufacture up to 3 billion doses by the end of December 2021 and deliver 2.3 billion doses. The vaccine was approved for younger patients (5-17 years) while a booster vaccine dose was also approved in the United States in 2021.

Pfizer and BioNTech’s Comirnaty has become a key contributor to the top line. In the first nine months of 2021, the vaccine contributed $24.3 billion to Pfizer’s global sales. The pharma giant expects to record $36.0 billion in revenues from Comirnaty in 2021.

Pfizer has filed an application to the FDA seeking Emergency Use Authorization (EUA) for its promising oral antiviral candidate for COVID-19, Paxlovid, for the treatment of mild-to-moderate COVID-19 in patients at increased risk of hospitalizations or death

At the recommendation of an independent Data Monitoring Committee, Pfizer stopped the phase II/III study on Paxlovid early due to the high efficacy observed in an interim analysis. Data from the study showed that Paxlovid (administered in combination with low dose ritonavir) reduced the risk of hospitalization or death by 89% in non-hospitalized adult patients with COVID-19 at high risk of progressing to severe illness compared to placebo within three days of symptom onset. Pfizer has also begun rolling submissions in several countries including the United Kingdom, Australia, New Zealand and South Korea.

If approved by the FDA, Paxlovid can be the first oral antiviral medicine, which can be prescribed as an at-home treatment for mild-to-moderate COVID-19 to reduce the severity of the disease. It can help prevent hospitalization of patients with a mild-to-moderate form of the disease but at a high risk of severe COVID-19.

In other pipeline successes, Pfizer’s Prevnar-20, a 20-valent pneumococcal conjugate vaccine, was approved in the United States this year. Earlier this month, Pfizer announced a definitive agreement to acquire Arena Pharmaceuticals for $100 per share or $6.7 billion in an all-cash deal.

The deal will add Arena’s lead candidate, etrasimod, a next-generation and selective sphingosine-1-phosphate (S1P) receptor modulator, to Pfizer’s inflammation and immunology pipeline.

Arena’s pipeline also includes pipeline candidates like temanogrel and APD41, which are in mid-stage development for cardiovascular diseases.

Pfizer may as well make another bolt-on acquisition announcement next year, given its strong cash position after the success of Comirnaty.

We believe that no company is as strongly placed in the COVID vaccines/treatment market as Pfizer right now. While the vaccine should continue to boost revenues in 2022, Paxlovid should also become an important top-line driver, if approved, with the Omicron variant posing an increasing threat of sharply rising infection cases.

Overall, Pfizer’s stock is expected to continue to do well in 2022, driven by strong growth of key brands like Ibrance, Inlyta and Eliquis, revenue contribution from its COVID-19 vaccine and potentially the COVID pill and regular positive pipeline and regulatory updates.

Estimates for Pfizer’s 2022 earnings have gone up from $3.61 to $5.33 over the past 60 days

Eli Lilly

Lilly has some intriguing pipeline assets in its portfolio for cancer, diabetes and Alzheimer's. Key pipeline candidates are dual GIP and GLP-1 receptor agonist tirzepatide for type II diabetes and donanemab for early Alzheimer's disease. Both candidates have multibillion-dollar sales potential. Both are expected to be approved next year. While tirzepatide is under review in the United States and EU, for donanemab, a rolling submission to the FDA for accelerated approval in early Alzheimer's disease is ongoing. The submission is expected to be completed by the end of the first quarter of 2022.

Lilly is fast closing in on its goal of launching 20 new medicines over the 10-year period from 2014 to 2023, having already launched 16 new medicines over the last eight years. Lilly plans to launch five more medicines — tirzepatide, donanemab, pirtobrutinib, lebrikizumab and mirikizumab — over the next two years, if they are approved.

Lilly has initiated a rolling FDA filing for pirtobrutinib, seeking accelerated approval in mantle cell lymphoma. Lebrikizumab (atopic dermatitis) and mirikizumab (ulcerative colitis and Crohn's disease) are in late-stage development.

Earlier this month Lilly raised its previously issued 2021 sales and earnings projections due to additional expected revenues from its COVID-19 antibody medicines.

Lilly expects revenues of $2.1 billion from COVID-19 therapies compared with the prior expectation of $1.3 billion based on a new U.S. government agreement in November to purchase 614,000 additional doses of bamlanivimab and etesevimab together. Lilly’s COVID-19 antibody cocktail, bamlanivimab plus etesevimab, was granted emergency approval by the FDA in February 2021 to treat mild-to-moderate COVID-19 in high-risk patients.

In September, the FDA expanded the EUA for the cocktail antibody medicine to include the post-exposure prevention (prophylaxis) for COVID-19 indication. In December, the FDA expanded the EUA again to allow the cocktail’s use in high-risk COVID-19 pediatric and infant patients both for treatment as well as for post-exposure prophylaxis

Lilly also issued its financial guidance for 2022 that exceeded expectations. Lilly expects its key growth products like Trulicity, Verzenio, Taltz, Jardiance and some other medicines to account for more than two-thirds of core revenues in 2022. This coupled with potential new product launches, primarily tirzepatide and donanemab, are expected to drive revenues in 2022.

Estimates for Lilly’s 2022 earnings have gone up from $8.31 to $8.42 per share over the past 60 days

Both Pfizer and Lilly currently have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.