The large-cap pharmaceutical industry has rebounded lately after struggling early in the year.
The Zacks Large-Cap Pharma industry, a 14 medical stock group, has gained 5.4% in the year so far. This industry also features among the top 9% of the 256 Zacks-ranked industries.
While stiff competition, drug pricing issue and biosimilar risks along with broader market correction dented performance early in the year, the going has been good lately. Strong quarterly results, consistent increases in full-year guidance, new product sales ramp up with rising demand, successful innovation and product line extensions, strong clinical study results and frequent FDA approvals have brought the sector back on track.
Meanwhile, both the pharma and biotech sectors have witnessed an increase in mergers and acquisition (M&A) activity this year, primarily driven by the benefits of tax reform. Swiss pharma giant, Novartis (NVS - Free Report) acquired AveXis, Inc. to foray into the promising gene therapy space.
Rival Roche too has made a few acquisitions. During the first quarter of 2018, Roche acquired Flatiron Health and Ignyta, Inc. While Flatiron Health will accelerate development and delivery of breakthrough medicines for oncology patients, Ignyta’s lead molecule entrectinib targets tumors with one of two genetically defined gene rearrangements, ROS1 fusions in NSCLC and NTRK fusions across a broad range of solid tumors. Roche also entered into a merger agreement with Foundation Medicine. Sanofi (SNY - Free Report) acquired Ablynx and Bioverativ Inc.
A lot of these large-cap pharmaceutical companies are looking to diversify their portfolio and combat the risk of loss of revenues as their top-selling drug face competition from their respective biosimilars.
Apart from these, other sector giants have also entered into collaboration deals to boost their pipeline.
While headwinds like high drug prices and competitive pressure will continue, we expect the momentum to continue in this sector driven by pipeline innovation and new product approvals. Moreover, investing in large-cap market is considered less risky as these companies have a diversified portfolio and dominant cash position. Investors can also benefit from share repurchases and dividend payments.
3 Stocks in Focus
Here we look at three large-cap pharma stocks, which have outperformed the industry so far this year and are set to generate solid returns in the coming months. Let’s discuss the factors driving these stocks and why one should add them to their portfolio.
Headquartered in London, UK, AstraZeneca plc, (AZN - Free Report) is one of the largest biopharmaceutical companies in the world.
AstraZeneca has a strong and diverse product portfolio. Newer drugs like Brilinta (cardiovascular), Lynparza (ovarian cancer), Farxiga/Forxiga (type II diabetes) and Tagrisso (lung cancer) are doing well. Lynparza became the first PARP-inhibitor to be approved for the breast cancer indication in the United States and the company is working to expand the drug’s label further. Lung cancer drug Imfinzi should also bolster the top line, given the potential in the non-small cell lung cancer (NSCLC).
The European Commission recently granted marketing authorization to Imfinzi as monotherapy for the treatment of locally-advanced, unresectable NSCLC in adults. Label expansion of the drug should further boost performance. Pipeline progress has also been encouraging. The FDA recently approved Lumoxiti for the treatment of adult patients with relapsed or refractory hairy cell leukemia. Asthma drug, Fasrena is also gaining traction. The FDA recently granted Breakthrough Therapy designation to tezepelumab for severe uncontrolled asthma.
AstraZeneca currently carries a Zacks Rank #1 (Strong Buy). Its shares have gained 12.7% in the year so far.
Based in Kenilworth, NJ, Merck & Co., Inc. (MRK - Free Report) is a global research-driven pharmaceutical products company. Its current growth story revolves around blockbuster drug Keytruda, the first anti-PD-1 therapy to gain FDA approval. It is now already approved for use in 12 indications across eight different tumor types in the United States. The label expansion of the drug has boosted sales. The FDA recently approved Keytruda in combination with Alimta and platinum chemotherapy for the first-line treatment of patients with metastatic nonsquamous NSCLC, with no EGFR or ALK genomic tumor aberrations, based on results of the KEYNOTE-189 trial. The drug is already approved as a monotherapy for the same.
Bridion and Naxafil also support the company’s top line. Moreover, the company also has a deep pipeline with quite a few late-stage candidates for cancer, cardiovascular diseases and vaccines.
Merck currently carries a Zacks Rank #2 (Buy). Its shares have rallied 24.4% in the year so far.
Indianapolis, IN based Eli Lilly and Company (LLY - Free Report) is a global healthcare company. Lilly boasts of a wide range of products that serve a vast number of therapeutic areas. Lilly’s new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo maintain momentum for the company. In particular, the company boasts a strong diabetes portfolio with the likes of Tradjenta, Jardiance, a sodium glucose co-transporter-2 (SGLT-2) inhibitor, Trulicity, Synjardy, Synjardy XR, Glyxambi and Basalgar. The pipeline holds potential. The company also recently won FDA approval for Emgality (galcanezumab) for the preventive treatment of migraine in adults.
Lilly currently carries a Zacks Rank #2. Its shares have gained 30.3% in the year so far.
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