The drug/biotech sector is in the limelight right now with investors hoping that the companies come up with a cure or vaccine for COVID-19, which has brought almost the whole world to a standstill. Several drug/biotech companies are working on making antibodies, drugs and vaccines to combat the disease.
The economic damage caused by the coronavirus-related lockdowns has made it all the more important for the pharma and biotech sector to find a treatment/vaccine for COVID-19 so that things can get back to normal.
The pandemic has hurt the drug/biotech sector too. Though stockpiling of consumer healthcare products and medicines by consumers benefited sales of drugmakers in the first quarter, the second quarter is expected to be more severely impacted with sales pulled into the first. 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.
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. Frequent FDA approvals have also played an important role in driving the sector up this year. The FDA has already approved 24 new drugs in less than six months of the year as well as several line extensions of marketed drugs.
The sector faces its share of headwinds like government scrutiny of high drug prices, pricing and competitive pressure, generic competition for blockbuster treatments and most importantly major pipeline setbacks. Nonetheless, webelieve the drug and biotech sector is better placed than retail, restaurants, gaming, transportation and travel.
Meanwhile, risks for a prolonged global recession 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 2.5% this year so far compared with the Zacks S&P 500’s decline of 3%.
Moreover, the Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #15, which places it in the top 6% of more than 250 Zacks industries.
In this scenario, investing in large drugmakers is a prudent move, given the fact that they control a large portion of the industry. Here we have highlighted four stocks that may prove to be good buys.
Eli Lilly & Company (LLY - Free Report)
Lilly is making rigorous efforts to make medicines/antibodies to treat COVID-19. Lilly already has two antibody candidates in phase I studies for treating COVID-19. It has also begun aphase III study to evaluate its JAK inhibitor, Olumiant (baricitinib) as a potential treatment for hospitalized patients diagnosed with COVID-19.
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, Retevmo/selpercatinibfor RET-altered cancers and Lyumjev/Ultra-rapid Lisprofor type I and type II diabetes in 2020. While Retevmo was approved in the United States in May and is under review in EU, Lyumjev is approved both in the EU and United States.
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.
Its shares have risen 21.7% 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 and from $7.92 per share to $8.00, respectively over the past 60 days.
AstraZeneca (AZN - Free Report)
AstraZeneca has been in the news recently for its agreement with Oxford University for the global development and distribution of the Oxford’s potential recombinant adenovirus vaccine, now known as AZD1222 to prevent COVID-19. It is currently being evaluated in a phase II/III study, data from which is expected to be released shortly. If the data is successful, late-stage studies with 30,000 participants are expected to begin in a number of countries.AstraZeneca has signed several supply deals across the world, which will require it toproduce 2 billion doses of the vaccine,if it is successfully developed.
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 8.1% this year so far. The Zacks Consensus Estimate for 2020 and 2021 has risen from $2.01 to $2.03 per share and from $2.57 to $2.61, respectively over the past 60 days.
AbbVie (ABBV - Free Report)
AbbVie currently has a Zacks Rank #2. Shares have risen 8.1% this year so far. Earnings estimates for 2020 and 2021 have risen 7.4% and 6.6%, respectively over the past 60 days.
Though AbbVie’s key drug, Humira is seeing sales erosion in international markets due to biosimilar competition, it continues to see strong demand trends in the United States. AbbVie has been successful in expanding labels of its cancer drugs, Imbruvica and Venclexta. Moreover, it has an impressive late-stage pipeline. It gained approvals for two new drugs with significant potential, Skyrizi (risankizumab) and Rinvoq, in 2019. Skyrizi and Rinvoq are off to strong starts and AbbVie expects combined revenues of these two drugs to be approximately $1.9 billion in 2020.
The acquisition of Allergan, which closed in May, should diversify AbbVie’s revenue base and accelerate its non-Humira business. AbbVie expects to launch more than 20 new products or line extensions of marketed drugs before Humira biosimilar competition begins in the United States in 2023.
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 2019 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 0.7% and 0.4%, respectively over the past 60 days.
A chart showing the share price movement of the four stocks this year so far is given below:
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