The performance of the drug and biotech sector has been lackluster this year, especially in the second half. The third-quarter results were mostly lukewarm. Higher tax rates due to changes in global tax regulations, macroeconomic uncertainty and inflation, regular pipeline setbacks and the slow ramp-up of newer drugs are areas of concern for the industry. Uncertainty about the impact of Medicare drug price negotiations and the Federal Trade Commission’s (FTC) scrutiny of M&A deals also add to the woes.
The Large Cap Pharmaceuticals industry has underperformed the broader S&P 500 index, as seen in the chart below. While the Large Cap Pharmaceuticals industry has risen 5.7% year to date, the S&P 500 index has risen 19.7%.
Image Source: Zacks Investment Research
Nonetheless, innovation has been driving growth in the industry, with key spaces like weight-loss/obesity and Alzheimer’s disease drugs attracting attention. M&A deals are also picking up, which shows growth. Of late, areas like obesity and inflammatory bowel disease are attracting buyout interest.
Here we discuss three big drugmakers that have outperformed the Large Cap Pharmaceuticals industry year to date.
Image Source: Zacks Investment Research Novo Nordisk ( NVO Quick Quote NVO - Free Report) : It has one of the broadest diabetes portfolios in the industry, with an extensive portfolio of insulin drugs and diabetes-related products. Semaglutide remains the growth engine of the company. It is approved as Ozempic pre-filled pen and Rybelsus oral tablet for type II diabetes and as Wegovy injection for weight management. Ozempic, Rybelsus and Saxenda have been helping the company maintain momentum. Wegovy has been witnessing increased demand trends in the United States.
Label expansion of these existing drugs is expected to boost sales further. On the third-quarter conference call, Novo Nordisk raised its 2023 guidance due to higher demand for Ozempic and Wegovy. Novo Nordisk has also significantly stepped up its M&A activity in the past two years.
Novo Nordisk sports a Zacks Rank #1 (Strong Buy). You can see
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Estimates for its 2023 earnings per share have increased from $2.57 to $2.62 over the past 30 days. Estimates for 2024 have jumped from $2.99 per share to $3.07 over the same timeframe. The stock has surged 53.5% year to date.
Eli Lilly ( LLY Quick Quote LLY - Free Report) : The company boasts a solid portfolio of core drugs for diabetes, autoimmune diseases and cancer. Its revenue growth is being driven by higher demand for drugs like Verzenio, Trulicity, Taltz and others. Lilly has lately made rapid pipeline progress in areas like obesity, diabetes and Alzheimer’s, thus attracting investors. Its new dual GIP and GLP-1 receptor agonist (GIP/GLP-1 RA), Mounjaro/tirzepatide, approved for type II diabetes in 2022, is already generating impressive sales, benefiting from strong demand trends.
Mounjaro sales totaled $2.96 billion in the first nine months of 2023. The drug showed a superior weight-loss reduction in clinical studies for obesity indication. It was approved for the said indication in the United States in November. Mounjaro will be marketed by the name of Zepbound for chronic weight management. Mounjaro and Zepbound are expected to be key top-line drivers for Lilly, with demand for weight loss drugs rising rapidly.
Lilly also gained approvals for some other new drugs in 2023. Omvoh/mirikizumab was approved for its first inflammatory bowel disease (IBD) indication, ulcerative colitis in the United States, Europe and Japan in 2023. Lilly expects to file a regulatory application seeking approval for Omvoh/mirikizumab for its second IBD indication of Crohn's disease in 2024.
Jaypirca/pirtobrutinib was approved for mantle cell lymphoma in the United States in January 2023 while it is under review in Europe for the indication. The FDA’s decision on Jaypirca for the chronic lymphocytic leukemia indication is expected by the end of 2023 while that for donanemab for early Alzheimer’s disease is expected in the first quarter of 2024. Lilly has also filed a regulatory application for donanemab for early Alzheimer’s disease in the EU.
All these potential new product launches bode well for the company's growth.
Lilly has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for Lilly’s 2023 EPS has declined from $8.20 per share to $6.62 over the past 30 days, while that for 2024 has declined from $13.16 per share to $12.58. The decline in estimates is however only to account for charges related to recent collaborations and deals. The stock has risen 61.7% so far this year.
Novartis ( NVS Quick Quote NVS - Free Report) : It is seeing solid demand for its key drugs like Entresto, Kesimpta, Zolgensma, Kisqali and Leqvio, which is fueling top-line growth. The FDA’s approval of breast cancer drug, Kisqali, has significantly boosted the company’s oncology portfolio, with the drug now being one of the top growth drivers. Other newer cancer drugs, Pluvicto and Scemblix, have witnessed solid launches. Leqvio’s launch continues to progress. With the separation of its generics division, Sandoz, Novartis has become a pure-play pharmaceutical company. The acquisition of Chinook Therapeutics has strengthened its renal pipeline.
Novartis has a Zacks Rank #3. Estimates for its 2023 earnings per share have increased from $6.62 to $6.66 over the past 30 days. Estimates for 2024 have jumped from $7.04 per share to $7.14 over the same timeframe. The stock has risen 7.7% so far this year.