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Investing in sound large-cap pharma stocks seems judicious as they are fundamentally lucrative and ensure a steady stream of cash inflows for the investor.

The drug sector had a good run in 2017, bouncing back after drug pricing issues dampened its performance in 2016. Importantly, the sector saw a considerable increase in new drug approvals last year. The FDA approved 46 novel drugs last year, more than double of 2016’s tally of 22.

The Large Cap Pharma industry witnessed an impressive rally in 2017, up 16.3% against a decline of 5.2% in 2016. The run was propelled by encouraging quarterly results, increased demand for new product sales, successful innovation and product line expansion. Strong clinical study results and continued strong performance of legacy products also boosted the sector.

These factors are expected to play an instrumental role in 2018 as well, which may take the large-cap drug sector to new highs. The industry is already up 3.9% so far this year.

Notably, the Large Cap Pharma industry carries a Zacks Industry Rank of #100, placing it among the top 39% of the 265 plus Zacks industries. Our back-testing shows that the top 50% of the Zacks ranked industries outperforms the bottom half by a factor of more than two to one.

The passing of the tax overhaul bill by the Congress is a cherry on the top. The slashing of the corporate tax rate from 35% to 21% is likely to further boost profit margins.Moreover, the cash repatriation window allowed in the bill will help companies to bring in cash stashed in foreign locations, leaving these companies with extra cash in hand. This may lead to strategic deals like merger and acquisitions this year, which were relatively fewer in 2017.

Most drug companies with a large market cap have seen their share price rise in 2018 so far. Here we present four companies, Johnson & Johnson (JNJ - Free Report) , AbbVie Inc. (ABBV - Free Report) , Zoetis Inc. (ZTS - Free Report) and Novo Nordisk A/S (NVO - Free Report) , which outperformed the industry last year and have the potential to repeat the same performance in 2018.

Johnson & Johnson

The company's stock was up 21.3% in 2017, which compared favorably with a gain of 16.3% recorded by the industry. The company has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s shares were boosted by the approval of two drugs, Tremfya for plaque psoriasis and Juluca for HIV, along with several line extensions to its major drugs including Xarelto, Simponi Aria, Stelara and Imbruvicain 2017.

The trend is expected to continue in 2018. J&J has several regulatory applications for label expansion of its key drugs under review. Potential approval to these line extensions will certainly boost the company’s growth prospects. Meanwhile, there are several pivotal data readouts and regulatory milestones lined up for 2018.

Moreover, J&J’s pharma segment’s growth accelerated in third quarter of 2017 after slowing down in the first half due to a number of factors including competition for some key drugs like Remicade and Concerta. The upside is expected to continue in 2018.

AbbVie

The stock of the company was up 54.4% in 2017. The company holds a Zacks Rank #2 (Buy).

In 2017, the company reported a series of positive news including promising data from several pivotal studies, regulatory approvals in the United States, Europe, and Japan for its competitive HCV medicine, Mavyret and FDA approval for the sixth indication for Imbruvica and settlement of its Humira patent disputes with Amgen Inc. (AMGN - Free Report) .

AbbVie also expects several pivotal data readouts and regulatory milestones in 2018, which is expected to further aid the company. The data readout from the pivotal phase III TRINITY study on Rova-T in third-line or later small cell lung cancer will be an important catalyst for the stock. Moreover, a FDA decision is expected on the new drug application ("NDA") for elagolix for endometriosis, which was granted priority review in October last year.

AbbVie’s blockbuster drug, Humira, has been performing well despite competitive pressure. The company expects the drug’s performance to continue, which will boost the topline. Imbruvica is also doing consistently well with multibillion dollar potential. AbbVie is exploring the possibility of label expansion into solid tumors and autoimmune diseases.

Novo-Nordisk

Shares of the company increased 49.7% in 2017. The company carries a Zacks Rank #3.

This company was granted approval to expand the label of its diabetes drug, Victoza, to include treatment of major adverse cardiovascular events in adults with type II diabetes in August 2017. Moreover, a new diabetes drug, Fiasp, received approval in September 2017 for treating adults with diabetes. In December 2017, the FDA approved Ozempic, a semaglutide once-daily pre-filled pen to improve glycaemic control in type II diabetes patients. It also received approval for Rebinyn for hemophilia B in the United States and Refixia for the treatment of adolescents and adults with the same indication in Europe.

In 2018, the company expects a U.S. launch of Ozempic and an approval for the same in Europe, which will certainly boost the company’s revenues.

Moreover, the company serves almost half of the insulin market and a quarter of the diabetes market. The growing diabetes market will certainly boost the topline.

Zoetis

The company's shares rose 34.6% in 2017. The company sports a Zacks Rank #1 (Strong Buy).

The company has a diversified portfolio of livestock and companion animal products. In2017, the company increased its share of the dermatology products for dogs market to 59%. The companion animal business has been performing well, along with the launch of Apoquel and Cytopoint. The company acquired Nexvet Biopharma last year, which boosted its pipeline of solutions for chronic pain management in dogs and cats. The company also expanded the reach of its poultry diagnostics products into major European markets.

In 2018, Zoetis topline is expected to benefit from Cytopoint, which was launched in Europe in the fourth quarter of 2017. The company expects cattle herd size to increase in 2018, which will drive growth.

Conclusion

With a strong product portfolio, consistently successful pipeline developments and anticipated growth in demand for drugs, these companies will likely attract investor attention this year as well.

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