It’s a fact that many biotech companies are hurtling toward approval of a vaccine to combat the novel coronavirus. It’s also a fact that the company or companies that win that race have a pretty big winner on their hands. All of this has thrust many pharmaceutical stocks into the spotlight.
And they need pipelines of these drugs to blunt the forces of competition and patent cliffs.
Granted, a smaller firm that generates a vaccine will get launched into the big leagues, but it will only last if it has the kind of research and development that will allow it to generate more important drugs.
The following are six of the best pharmaceutical stocks to buy that will carry your portfolio boldly into the future:
- AstraZeneca (NYSE:AZN)
- Dr Reddy’s Laboratories (NYSE:RDY)
- Repligen (NASDAQ:RGEN)
- Zoetis (NYSE:ZTS)
- Horizon Therapeutics (NASDAQ:HZNP)
- Eli Lilly (NYSE:LLY)
This list comprises a broad selection of companies where there are some pandemic plays and some that are on a completely different long-term trajectory.
If being a big pharmaceutical company is about having a healthy pipeline, AZN is classic example. Currently, it has 166 drugs in approval pipelines around the world. And of those, more than a dozen are in phase 3 trials and another 3 dozen are in life cycle management, where the pharma applies for new uses for its existing drugs before they go off patent.
AZN is headquartered in Cambridge, England. And it’s the partner of the Oxford Vaccine group that developed a promising Covid-19 vaccine. AZN is taking through trials in the U.S. and the U.K. This week, the drug entered phase 3 trials in the U.S. and U.K.
The company also has an important library of oncology drugs as well as cardiovascular and respiratory medicines.
Given all the vaccine hype, AZN stock has been very popular. It’s currently trading at a price-to-earnings ratio of 66x and is up 21% in the past year. But its long-term prospects, and its 2.5% dividend make it a solid long-term bet compared to other pharmaceutical stocks.
Dr Reddy’s Laboratories (RDY)
This India-based pharmaceutical firm has a wide array of products, from over the counter drugs to generics to proprietary medicines.
It was started by the company’s namesake and his desire to create a world class pharmaceutical company that could supply all Indians with affordable, quality medicines.
It has grown far beyond that initial mission and is now one of the leading generic drug companies in the world. RDY is also now one of the more appealing pharmaceutical stocks to choose from now.
This is especially true if you’re looking for a pandemic vaccine connection. RDY signed a non-exclusive manufacturing deal with Gilead Sciences (NASDAQ:GILD) for its remdesivir drug in June. Even if the drug doesn’t end up as a Covid-19 vaccine, it’s still an important contract because the drug has other important uses. And when it goes off patent, RDY will already have the ability to make the generics.
RDY stock is up nearly 60% in the past year, 47% year to date, but it isn’t too expensive here. Most big-cap pharma stocks are going to trade at premiums and RDY stock is a generic pharma to watch.
RGEN isn’t the gold prospector in the pharma industry, it’s the pick and shovel company. It doesn’t make drugs, it makes the equipment that allows companies to make biologic drugs (as opposed to synthetic drugs).
Obviously, this has been a very hot space in drug development as the race continues for a coronavirus vaccine. And that has been reflected in RGEN earnings. In Q2, its earnings were up 50% from the same quarter last year. Analysts were expecting them to come in below last year’s numbers.
That is a testament to the amount of business RGEN is doing in this pandemic world.
Biopharmaceuticals are taking on a new life now that technology allows us to better understand and manipulate matter down to the molecular level. What synthetic biology was to the preceding decades, now molecular biology is gaining speed as well as molecular chemistry.
RGEN is one of the leading companies that is helping biopharmaceuticals grow their influence in the sector. And it has been doing this since 1981, so it’s a well-known name.
The stock is up strongly, 57% year to date and is now trading at a triple-digit P/E, but there is real growth potential here, so it’s likely RGEN stock will rise to the occasion over time.
A year ago there was another virus that was in the headlines around the world. It was the African Swine Flu (ASF). It was so devastating that it was driving record inflation in China and disrupting pork markets around the world.
That’s right. Pork.
By the time China, the world’s No. 1 pork consumer, got it under control, it had culled 40% of its pigs. And even during the pandemic, there was news out of China that ASF had made the animal to human jump, as a handful of farmworkers in China were diagnosed with ASF.
As we all know by now, it’s not just when these viruses leave their animal hosts that economies can suffer. A significant disruption in the agricultural supply chain can have devastating long-term effects.
That’s why ZTS is such an important company. It is big pharma for animals, both livestock and domestic pets. The pet care market is booming and has been for some time now. And it’s predicted to keep up a brisk growth track.
ZTS stock is up 24% in the past year and trades at a premium at this point. But the potential for growth is there, especially is it rolls out its ASF vaccine candidate as well as other vaccines that may be humans’ first line of defense.
Horizon Therapeutics (HZNP)
HZNP is one of those biopharmaceuticals that rely on RGEN to build out its pipeline of drugs. Headquartered in Ireland, almost all of its drugs are sold into the U.S. market.
The pharma specializes in rare diseases and rheumatic conditions. It currently has 10 drugs in the market for everything from gout to chronic granulomatous disease (CGD). That latter is an inherited disorder that doesn’t allow the body’s phagocytes to fight bacterial and fungal infections properly.
Its portfolio in the rare disease space — it has four drugs in it — has a good amount of pricing power and good competitive moats. HZNP has a $15 billion market cap, so it’s well positioned to grow or be acquired now that bigger drug companies are flush with cash and are always looking for companies with unique niches they can bolt on to their broader businesses.
HZNP stock is up 170% in the past year, yet it only trades at a slight premium to the broad market.
Eli Lilly (LLY)
If you’re looking for an Old Guard pharma that has been through just about every kind of economy you can imagine and come out strong, than look no further than LLY stock.
Founded in 1876, LLY developed the first commercially available insulin product in 1923. It was one of the first companies to mass produce penicillin and usher in the age of antibiotics.
It was the first company to produce and distribute the Salk polio vaccine.
When medical history was being made, LLY was always around. And that remains the case today. Just this week, Morgan Stanley has upgraded the stock to overweight and raised its target price.
It has such a huge stable of drugs and an equally impressive pipeline. And with a market cap nearing $143 billion, you can be sure that LLY will be in the mix. It currently is in phase 3 trial of a drug for Covid-19 patients in long-term care facilities.
The crazy thing is, LLY stock is up nearly 38% in the past year, delivers a 2% dividend and yet it’s trading at or slightly below the average market P/E. If you’re looking for bedrock pharma company for the long term, look no further. LLY is one of the best pharmaceutical stocks to buy now.
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Source: Investor Place