These 3 Stocks Could Hand Investors Some of the Biggest Returns They’ll See in 2016

In the big-cap pharma arena, any drug that can ring up $1 billion in sales in its first 12 to 18 months on the market is called a “blockbuster.”

These drugs are the Holy Grail of pharma investing at this level.

Of course, it’s no coincidence that it costs $1 billion to bring a drug through clinical trials and Food and Drug Administration approvals.

So, if a blockbuster drug does pull in $1 billion in revenue the first year out, you’re basically printing money every year after that.

Let me show you the immense scale of the opportunity that’s right in front of us today…

In 2014, the top-selling drug on the planet was AbbVie Inc.’s (Nasdaq: ABBV) Humira (adalimumab). It pulled in $12 billion in sales.

Gilead Sciences Inc.’s (Nasdaq: GILD) radical hepatitis C (HCV) drug, Sovaldi (sofosbuvir), brought in more than $10 billion, and the company’s Harvoni (Ledipasvir/sofosbuvir) sold $10 billion in its first year out of the gate.

These are great drugs, and good profits, to be sure. But what’s coming this year is going to be something else again…

This Is the Right Investment at the Right Time

Life science investing is all about looking forward to the next big winners. I believe our timing is really good, too, not despite the bear market but because of it.

Fact is, drug firms have been beaten down during this year’s market retreat. Consider that since the drug sell-off helped lead the market down back on Dec. 30, the Dow Jones Pharmaceuticals Index fell some 10.3% before it bottomed out on Feb. 11.

That means we can invest in the next round of blockbuster drugs at steep discounts.

Just take a look at Merck & Co. Inc. (NYSE: MRK). The drug giant recently beat on sales and earnings for the fourth quarter. However, the stock came under pressure because it guided for 2016 a bit on the low side of Wall Street’s forecasts.

Earnings actually climbed 7% in the fourth quarter, but that was not enough to stop the stock’s decline in a choppy, news-driven market concerned about global growth.

But there’s a hidden upside here that hasn’t been written into anyone’s estimates…

It’s a new hepatitis C drug that I believe will be well-received in the United States and could be a blockbuster for Merck.

Zepatier (elbasvir and grazoprevir) already received broad approval in the Canada. That means Merck may soon be able to extend the drug to new patient groups, since the two major North American markets are closely linked.

Zepatier alone would be reason enough to jump on these shares, but that’s not Merck’s only potential big sales hook. It also has two recent diabetes drugs, Januvia (sitagliptin) and Janumet (sitaglipton metformin HCl), that racked up $1.4 billion in the fourth quarter alone.

Another hot sector for the firm is a new generation of cancer drugs, with Keytruda (pembrolizumab) already making its mark for Merck. Last quarter it rang up $214 million in sales and it is still in a very focused oncological market.

The next company I’m about to show you has been rewarding shareholders for decades, and it’s just not going to stop.

This Old Firm Has a Cutting-Edge New Drug

For its part, Eli Lilly and Co. (NYSE: LLY) also has a couple of possible big breakouts.

Lilly ranks as one of America’s oldest and most trusted drug firms. It was the first company to mass produce penicillin, insulin, and the polio vaccine, and remains the world’s No. 1 seller of psychiatric medications.

One of the storied firm’s biggest potential winners is a new drug for psoriasis, ixekizumab. Remember, the top-selling drug in the world, Humira, is a psoriasis drug. And once it got through the door, it added a number of other treatment options to its repertoire.

The same potential is there for Lilly’s new drug. Even if it doesn’t eclipse Humira, the No. 2 spot in the sector is still likely worth billions. The drug is expected to launch in the first half of 2016.

What’s more, Lilly’s type 2 diabetes drug Jardiance (empagliflozin) will be picking up steam because a recently released medical study revealed the compound substantially reduced heart failure as well.

Rounding out this big-cap pharma “triple play” is a company that’s given investors triple-digit gains already, and it’s setting up for a repeat.

Building on Gilead’s Huge Success

Gilead Sciences shows no signs of letting up. It’s been a rising star in no small measure because of its success in the HCV market.

Indeed, earlier this month Gilead reported for the fourth quarter and trounced earnings. Profits were up 35% from the year-ago quarter and beat analysts’ estimates by more than 10%.

For the full year, the numbers are even more impressive: earnings were up a whopping 56% and revenue soared 31%.

However, the stock is off this year with the rest of the sector.

Frankly, Wall Street is worried about challenges to Gilead’s HCV dominance.

But… Wall Street is missing some critical facts. First, the company has applied to the FDA to get approval to treat all six known HCV genotypes.

If it gets approval, and the odds look good right now, that would make Gilead the first company to have a pan-HCV drug. Either way, Gilead still has a lot of growth potential outside the United States; worldwide, there are about 130 million people just with genotype 1 or 3.

What’s more, Gilead has a promising oncology drug that could ramp up sales for the firm.

Zydelig (idelalisib) treats three types of blood cancers and recently went on the market.

Any one of these three companies would make a terrific investment, but taken together Gilead, Lilly, and Merck could hand investors some of the biggest gains they’ll see in all of 2016.

— Michael A.Robinson

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Source: Money Morning