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Pharma Q1 Earnings Begin With J&J's Report: 3 Stocks to Buy
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Drug and consumer products giant, Johnson & Johnson (JNJ - Free Report) set in motion the first-quarter earnings season for the Pharma sector. It posted strong first-quarter results, beating estimates for both earnings and sales. The company also boosted its quarterly dividend which reflects the stability of the business.
Its blockbuster drugs —oncology drugs Imbruvica and Darzalex and psoriasis treatment, Stelara—pulled up sales of its Pharmaceuticals unit. Meanwhile, increased demand for products like Tylenol analgesics and Listerine mouthwash as consumers under lock down stocked up basic medicines and consumer products increased sales of its Consumer Healthcare segment. However, widespread decline in elective surgical procedures and redeployment of hospital resources to address patients affected by the pandemic led to a decline in sales at its Medical Devices unit.
However, as expected J&J lowered its adjusted earnings and sales guidance for 2020 for coronavirus related uncertainty and costs related to investments that the company is making to combat the disease. J&J has identified a lead vaccine candidate for COVID-19 and expects to begin phase I human clinical studies on the same in the United States and Europe by September. J&J plans to begin production at risk imminently and its goal is to supply more than 1 billion doses of the vaccine globally. J&J looks confident of having the first batch of COVID-19 vaccine available for emergency use authorization, on a not-for-profit basis, by early 2021.
On its call, J&J briefed about the impact of the COVID-19 crisis on its near-term financial performance. The company’s chief financial officer, Joe Wolk said the company believes the relative shape of the COVID-19 curve is more of an acute shorter-term impact rather than a prolonged impact. He went on to say that the global economy will improve coming out of the second quarter with lower unemployment, better insurance coverage and higher procedure capacity.
J&J expects some of the coronavirus related benefit seen in the Consumer Health segment, mainly its over-the-counter medicines, to reverse over the subsequent quarters. While the negative impact seen in the Medical Devices unit is expected to be most significant in the second quarter, J&J believes that elective procedures will recover in the third quarter and improve in the fourth quarter. Meanwhile, it expects sales in its Pharmaceutical segments to remain strong and continue to grow above market though it expects a small level of disruption associated with delayed diagnosis and new patient starts.
Overall, its guidance was lowered mainly due to the estimated decline in Medical Device sales.
J&J is the first of the big drugmakers to report earnings for what is expected to be a brutal earnings season. Investors typically look at J&J’s results for signals about how the rest of the big drugmakers will fare.
J&J’s first-quarter sales performance, particularly the resilience of its Pharmaceuticals business, suggests that Pharma units of most of the big drugmakers should not be affected much by the unprecedented pandemic. Drug makers like Glaxo (GSK - Free Report) and Sanofi (SNY - Free Report) could also see increased sales in their Consumer HealthCare units as demand for consumer healthcare products has been strong amid the coronavirus outbreak.
Overall, though a near-term impact due to coronavirus uncertainty cannot be ruled out, we believe the drug and biotech sector is better placed than other industries like retail, restaurants, gaming, transportation and travel. All eyes are on the industry in the hope of a cure. The outbreak may bring in new appreciation for the industry as several drug/biotech companies are working on making new antibodies, drugs and vaccines to combat the disease.
Meanwhile, recession risks have risen as coronavirus cases rise around the world. The pharma and biotech sector is considered a defensive sector as it is not much impacted by a recession. This is because people will continue to buy medicines during difficult times as well.
The Zacks Large Cap Pharmaceuticals industry, comprising some of the biggest drugmakers in the world, has declined 7.2% this year so far. However it has outperformed the Zacks S&P 500 decline of 14.5%.
Moreover, the Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #27, which places it in the top 11% of more than 250 Zacks industries.
In this scenario, investing in stocks of large drugmakers is a prudent move, given the fact that they control a large portion of an industry. Here we have highlighted three stocks that may prove to be good buys.
Lilly is making significant pipeline progress with several positive late-stage data readouts and multiple regulatory updates scheduled for 2020. Lilly expects to launch two medicines, selpercatinibfor RET-altered cancers and Ultra-rapid Lispro/ultra-rapid acting insulin for type I and type II diabetes in 2020.
In 2020, Lilly’s expects its revenues to be driven by higher demand for key drugs like Trulicity, Jardiance, Taltz, Verzenio, Basaglar, Emgality as well as newly launched Baqsimi and Reyvow. Meanwhile, these drugs are also being evaluated for additional indications/label expansions, which can drive sales in the future quarters. Lilly is also regularly adding promising new pipeline assets through business development deals
The stock has also gained recently because of the company’s efforts to make therapies to treat COVID-19. Last week, Lilly announced that the National Institute of Allergy and Infectious Diseases (NIAID) will evaluate its JAK inhibitor, Olumiant (baricitinib) as a potential treatment for hospitalized patients diagnosed with COVID-19. Alongside, later this month, Lilly will advance LY3127804, its monoclonal antibody that inhibits Angiopoietin 2 (Ang2), to phase II studies in pneumonia patients hospitalized with COVID-19.
Sanofi’s Specialty Care segment is on a strong footing, particularly with regular label expansion of blockbuster immunology drug, Dupixent. The drug has, in a very short time, become the key top-line driver for Sanofi. The performance of the Vaccines franchise has also improved of late. Sanofi’s R&D pipeline is strong and it delivered several positive data read-outs and achieved regulatory milestones in 2019 with the momentum expected to continue in 2020. Its cost savings and efficiency initiatives support bottom-line growth.
It has also announced several plans to make therapies/vaccines for treating COVID-19. Sanofi and partner Regeneron have started phase II/III studies both in and outside the United States to evaluate their rheumatoid arthritis drug, Kevzara for severe COVID-19 infection. While Regeneron is leading the U.S. studies, Sanofi is taking care of the ex-U.S. studies. Sanofi also has a collaboration with Translate Bio to jointly develop a novel messenger RNA (mRNA) vaccine for COVID-19. Meanwhile, it has also joined forces with BARDA to quickly develop a vaccine for COVID-19. Sanofi has a Zacks Rank #1.
Bristol-Myers has a Zacks Rank of 2. Bristol-Myers’ blockbuster immuno-oncology drug, Opdivo and blood thinner Eliquis are driving sales growth. Label expansion of Opdivo into additional indications will further boost the top line. Empliciti and Sprycel are also performing well on label expansions. Meanwhile, the recent acquisition of Celgene has strengthened the company’s oncology portfolio with the addition of Revlimid. The acquisition will also strengthen the company’s pipeline with encouraging candidates.
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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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Pharma Q1 Earnings Begin With J&J's Report: 3 Stocks to Buy
Drug and consumer products giant, Johnson & Johnson (JNJ - Free Report) set in motion the first-quarter earnings season for the Pharma sector. It posted strong first-quarter results, beating estimates for both earnings and sales. The company also boosted its quarterly dividend which reflects the stability of the business.
Its blockbuster drugs —oncology drugs Imbruvica and Darzalex and psoriasis treatment, Stelara—pulled up sales of its Pharmaceuticals unit. Meanwhile, increased demand for products like Tylenol analgesics and Listerine mouthwash as consumers under lock down stocked up basic medicines and consumer products increased sales of its Consumer Healthcare segment. However, widespread decline in elective surgical procedures and redeployment of hospital resources to address patients affected by the pandemic led to a decline in sales at its Medical Devices unit.
However, as expected J&J lowered its adjusted earnings and sales guidance for 2020 for coronavirus related uncertainty and costs related to investments that the company is making to combat the disease. J&J has identified a lead vaccine candidate for COVID-19 and expects to begin phase I human clinical studies on the same in the United States and Europe by September. J&J plans to begin production at risk imminently and its goal is to supply more than 1 billion doses of the vaccine globally. J&J looks confident of having the first batch of COVID-19 vaccine available for emergency use authorization, on a not-for-profit basis, by early 2021.
On its call, J&J briefed about the impact of the COVID-19 crisis on its near-term financial performance. The company’s chief financial officer, Joe Wolk said the company believes the relative shape of the COVID-19 curve is more of an acute shorter-term impact rather than a prolonged impact. He went on to say that the global economy will improve coming out of the second quarter with lower unemployment, better insurance coverage and higher procedure capacity.
J&J expects some of the coronavirus related benefit seen in the Consumer Health segment, mainly its over-the-counter medicines, to reverse over the subsequent quarters. While the negative impact seen in the Medical Devices unit is expected to be most significant in the second quarter, J&J believes that elective procedures will recover in the third quarter and improve in the fourth quarter. Meanwhile, it expects sales in its Pharmaceutical segments to remain strong and continue to grow above market though it expects a small level of disruption associated with delayed diagnosis and new patient starts.
Overall, its guidance was lowered mainly due to the estimated decline in Medical Device sales.
J&J is the first of the big drugmakers to report earnings for what is expected to be a brutal earnings season. Investors typically look at J&J’s results for signals about how the rest of the big drugmakers will fare.
J&J’s first-quarter sales performance, particularly the resilience of its Pharmaceuticals business, suggests that Pharma units of most of the big drugmakers should not be affected much by the unprecedented pandemic. Drug makers like Glaxo (GSK - Free Report) and Sanofi (SNY - Free Report) could also see increased sales in their Consumer HealthCare units as demand for consumer healthcare products has been strong amid the coronavirus outbreak.
Overall, though a near-term impact due to coronavirus uncertainty cannot be ruled out, we believe the drug and biotech sector is better placed than other industries like retail, restaurants, gaming, transportation and travel. All eyes are on the industry in the hope of a cure. The outbreak may bring in new appreciation for the industry as several drug/biotech companies are working on making new antibodies, drugs and vaccines to combat the disease.
Meanwhile, recession risks have risen as coronavirus cases rise around the world. The pharma and biotech sector is considered a defensive sector as it is not much impacted by a recession. This is because people will continue to buy medicines during difficult times as well.
The Zacks Large Cap Pharmaceuticals industry, comprising some of the biggest drugmakers in the world, has declined 7.2% this year so far. However it has outperformed the Zacks S&P 500 decline of 14.5%.
Moreover, the Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #27, which places it in the top 11% of more than 250 Zacks industries.
In this scenario, investing in stocks of large drugmakers is a prudent move, given the fact that they control a large portion of an industry. Here we have highlighted three stocks that may prove to be good buys.
Eli Lilly & Company (LLY - Free Report)
Lilly is making significant pipeline progress with several positive late-stage data readouts and multiple regulatory updates scheduled for 2020. Lilly expects to launch two medicines, selpercatinibfor RET-altered cancers and Ultra-rapid Lispro/ultra-rapid acting insulin for type I and type II diabetes in 2020.
In 2020, Lilly’s expects its revenues to be driven by higher demand for key drugs like Trulicity, Jardiance, Taltz, Verzenio, Basaglar, Emgality as well as newly launched Baqsimi and Reyvow. Meanwhile, these drugs are also being evaluated for additional indications/label expansions, which can drive sales in the future quarters. Lilly is also regularly adding promising new pipeline assets through business development deals
The stock has also gained recently because of the company’s efforts to make therapies to treat COVID-19. Last week, Lilly announced that the National Institute of Allergy and Infectious Diseases (NIAID) will evaluate its JAK inhibitor, Olumiant (baricitinib) as a potential treatment for hospitalized patients diagnosed with COVID-19. Alongside, later this month, Lilly will advance LY3127804, its monoclonal antibody that inhibits Angiopoietin 2 (Ang2), to phase II studies in pneumonia patients hospitalized with COVID-19.
Its shares have risen 15% this year so far. Lilly has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sanofi
Sanofi’s Specialty Care segment is on a strong footing, particularly with regular label expansion of blockbuster immunology drug, Dupixent. The drug has, in a very short time, become the key top-line driver for Sanofi. The performance of the Vaccines franchise has also improved of late. Sanofi’s R&D pipeline is strong and it delivered several positive data read-outs and achieved regulatory milestones in 2019 with the momentum expected to continue in 2020. Its cost savings and efficiency initiatives support bottom-line growth.
It has also announced several plans to make therapies/vaccines for treating COVID-19. Sanofi and partner Regeneron have started phase II/III studies both in and outside the United States to evaluate their rheumatoid arthritis drug, Kevzara for severe COVID-19 infection. While Regeneron is leading the U.S. studies, Sanofi is taking care of the ex-U.S. studies. Sanofi also has a collaboration with Translate Bio to jointly develop a novel messenger RNA (mRNA) vaccine for COVID-19. Meanwhile, it has also joined forces with BARDA to quickly develop a vaccine for COVID-19. Sanofi has a Zacks Rank #1.
Bristol-Myers Squibb Company (BMY - Free Report)
Bristol-Myers has a Zacks Rank of 2. Bristol-Myers’ blockbuster immuno-oncology drug, Opdivo and blood thinner Eliquis are driving sales growth. Label expansion of Opdivo into additional indications will further boost the top line. Empliciti and Sprycel are also performing well on label expansions. Meanwhile, the recent acquisition of Celgene has strengthened the company’s oncology portfolio with the addition of Revlimid. The acquisition will also strengthen the company’s pipeline with encouraging candidates.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>