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Drug Sector Highly Resilient Amid Coronavirus Mayhem: 5 Picks

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The drug/biotech sector, as a group, is pretty hot right now for investment. The sector's performance was impressive this reporting cycle as most of the players came up with better-than-expected sales and earnings .

The majority benefited from stockpiling of consumer healthcare products and oral and self-administered medicines by consumers/patients/distributors amid coronavirus-led lockdown. However, sales of drugs/medicines that require significant physician office or institutional visits were hurt in the quarter.

There is widespread uncertainty about the impact of the coronavirus pandemic on business, including supply chain, clinical trials, commercial operations and growth outlook of drug/biotech companies. Most companies expect Q2 results to be more severely impacted with sales pulled into Q1. Also, R&D timelines have been impacted with some companies pausing enrollments in ongoing studies and others delaying new study starts.

However, almost all companies are optimistic of a recovery in the second half of the year as trends of patient visit to doctors, vaccinations and elective surgical procedures are expected to return to normal levels. As such, most companies maintained their financial guidance for the year with the exception of J&J (JNJ - Free Report) and Merck (MRK - Free Report) . J&J lowered its sales and earnings guidance mainly on weakness in its Medical Devices unit due to widespread decline in elective surgical procedures. Merck lowered its sales and earnings guidance for 2020 as almost two-third of its pharmaceutical revenues come from physician-administered products.

Companies also expect enrollment in clinical studies and new study starts to resume in the second half of the year.

Overall, despite the short-term disruptions, the fundamentals of the drug/biotech sector are largely intact. Demand-driven growth in sales of new products, successful innovation and product line extensions in important therapeutic areas, strong clinical study results, growing demand for drugs, especially for rare-to-treat diseases, heightened M&A activity and appropriate utilization of cash should put the sector on a firm footing once the pandemic-related uncertainty subsides.

We believe the drug and biotech sector is better placed than retail, restaurants, gaming, transportation and travel. All eyes are on the space in the hope of a cure. The outbreak may bring in new appreciation as several drug/biotech companies are working on making antibodies, drugs and vaccines to combat the disease.

Meanwhile, recession risks have risen with coronavirus cases rising around the world. The pharma and biotech sector is considered a defensive space as it is not much impacted by a recession. This is because people will continue to buy medicines even amid difficult times.

The Zacks Large Cap Pharmaceuticals industry, comprising some of the biggest drugmakers in the world, has declined 1% this year so far. However it has outperformed the Zacks S&P 500’s decline of 9%.

 

 

 

Moreover, the Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #21, which places it in the top 8% 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 the industry. Here we have highlighted five 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, selpercatinib for RET-altered cancers and Ultra-rapid Lispro/ultra-rapid acting insulin for type I and type II diabetes in 2020. Selpercatinib was approved last week by the FDA and will be marketed by the trade name of Retevmo.

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. 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 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.

Its shares have risen 20% this year so far. Lilly currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings estimates for 2020 and 2021 have risen from $6.77 per share to $6.81 per share and from $7.94 per share to $8.02 per share, respectively over the past 30 days.

AstraZeneca (AZN - Free Report)

AstraZeneca’s newer drugs, mainly cancer medicines Lynparza, Tagrisso and Imfinzi, should keep driving revenues in 2020. Its pipeline is strong with abundance of catalysts. Several launches are underway across each of the therapeutic areas — Oncology; Cardiovascular, Renal and Metabolism; and Respiratory. AstraZeneca engages in external acquisitions and strategic collaborations to boost its pipeline while investing in geographic areas of high growth like China. Cost-cutting efforts should drive earnings

This #2 Ranked (Buy) stock has risen 8.5% this year so far. The Zacks Consensus Estimate for 2020 has risen from $2.01 to $2.02 per share over the past 30 days.

Pfizer (PFE - Free Report)

In 2019, Pfizer formed a Consumer Healthcare joint venture with Glaxo, acquired cancer-focused biopharma company Array BioPharma  and signed a deal to merge its Upjohn unit with Mylan. These transactions are expected to make Pfizer a smaller company with a diversified portfolio of innovative drugs and vaccines. The smaller Pfizer should see better revenue growth as the Lyrica loss of exclusivity cliff will go away. Pfizer’s key drug Lyrica lost exclusivity in June 2019 and multi-source generic competition began in July 2019 in the United States. This hurt Pfizer’s sales significantly in 2019. Pfizer expects continued strong growth of key brands like Ibrance, Inlyta and Eliquis to drive sales in 2020. Pfizer also has a strong portfolio of new drugs, which will accelerate growth in 2020 and beyond. 

The company has also been in the news lately for its efforts to make a vaccine to prevent COVID-19 in partnership with Germany-based biotech BioNTech. Clinical studies on BioNTech’s mRNA-based vaccine candidate, BNT162 have begun in Germany and the United States.

Pfizer has a Zacks Rank of 2. Earnings estimates for 2020 and 2021 have risen 0.4% each over the past 30 days.

Sanofi (SNY - Free Report)

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-saving 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 and Glaxo have collaborated to combine their innovative technologies to develop an adjuvanted COVID-19 vaccine. Sanofi has collaboration with BARDA to fund the development of its recombinant-based COVID-19 vaccine candidate. The company has also collaborated with Translate Bio to develop an mRNA-based vaccine for coronavirus infection.

Sanofi currently has a Zacks Rank #2.

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. The recent acquisition of Celgene has strengthened the company’s oncology portfolio with the addition of Revlimid. The acquisition has also strengthened the company’s pipeline with encouraging oncology candidates.

Earnings estimates for 2020 and 2021 have risen from $6.11 per share to $6.12 per share and from $7.31 per share to $7.33 per share, respectively over the past 30 days.

A chart showing the share price movement of the five stocks this year so far is given below:

 

 

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