Drug Company Stocks To Buy
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UnitedHealth Group is the biggest publicly traded health insurance company in the U.S. by market capitalization. Through its network of companies, UnitedHealth offers numerous health insurance plans as well as owns Optum, which provides, among other things, healthcare benefits like health savings accounts (HSAs).
While Johnson & Johnson is often thought of for its consumer products, it actually makes far more than Q-tips and baby powder. For example, researchers at the company developed one of the three FDA emergency authorized Covid-19 vaccines, the only single-shot option currently available. Started in 1886, J&J has a whopping 130,000 employees spread across operations in 60 countries.
Indiana-based pharmaceutical firm Eli Lilly employs more than 34,000 employees across 18 countries and sells its products in 120 different countries. The company was founded in 1876 by Colonel Eli Lilly, who was a veteran of the Civil War. One of the first products it developed was quinine, a medication used to treat malaria.
Currently, Novo employs more than 45,000 people and sells its wares in over 160 countries. It has also been named one of the best companies to work for for over a decade and in 2012 was named the most sustainable company in the world by Canadian media company Corporate Knights.
Like many other healthcare companies, Thermo Fisher has jumped into the Covid-19 business. The company already offers a test that it says can detect the new omicron variant, making it presently the only FDA-authorized test capable of detecting the variant.
Abbott Labs was founded in 1888 and is headquartered outside of Chicago, Ill. The company is a large developer of pharmaceuticals and medical devices, including tests. Abbott is perhaps best known for some of its more innocuous consumables, such as PediaSure, Pedialyte and Similac. But, like other healthcare companies responding to the pandemic, it also has a Covid-19 test.
Each stock market sector comprises many industries, each with their own nuances, and healthcare is no different. Four of the most important of subtypes of stocks in the case of the healthcare sector include:
As defensive stocks, healthcare companies provide steady returns in any market. Because people will always need healthcare, the healthcare sector provides very steady, consistent returns that are uncorrelated with the overall direction of the stock market.
Disruption by new players is a constant threat for established healthcare stocks. More and more tech companies are getting involved in the healthcare sector. Firms like Amazon may significantly disrupt old ways of doing business. Nimble biotechs may outperform stodgy huge pharmaceutical firms.
Sustaining growth can be challenging for some types of healthcare stocks. Companies that make drugs and medical devices must convince health insurers and government agencies to continue buying their products. If these players fail to grant reimbursement approvals, their growth prospects can dim.
Not every stock went down in 2022. Shares in some the biggest pharmaceutical companies rose in price. If you can make it in a market like 2022, imagine what can happen in 2023 for many top pharma stocks.
But that could just be the start. If drugs cost less under Medicare than with private insurance, patients and plans may demand to be let in on the savings. The government will push drugmakers to compete on price, squeezing margins. Insurers may join them.
The bottom line is that the law will be less-effective than advertised, at least in 2023, with many provisions failing to take effect for years. Thus, the industry has time to adapt, giving investors time to load up on thee top pharma stocks.
Merck (NYSE:MRK) had a spectacular 2022, with its stock rising 44% as the average stock in the S&P 500 fell almost 20%. This brought the market cap of one of the top pharma stocks in the market to $280 billion in early 2023.
Eli Lilly (NYSE:LLY) stock had a stellar 2022, rising nearly 33%. Its market cap entering January was about $347 billion. The company has a large lead in treating diabetes that is leading to breakthroughs in weight loss.
Lilly is already expanding its manufacturing capacity in expectation of a quick approval. Lilly has another drug called retatrutide, about to go into Phase 3 testing, that could be even more effective. The drug works by mimicking a hormone that drives hunger, and by causing food to clear from the stomach more slowly.
Amgen (NASDAQ:AMGN) stock managed to gain 17% in 2022, while the average S&P stock lost 20%. This is among the most valuable pharma stocks out there, with a market cap of approximately $139 billion, a price-earnings ratio 21-times, and a fat dividend yield of 3.2%
But the real excitement surrounds the pending purchase of Horizon Therapeutics (NASDAQ:HZNP) for nearly $28 billion. Horizon makes drugs for rare autoimmune and inflammatory diseases. Its best known drug is Tepezza, used to treat thyroid eye disease.
Amgen could also get a boost if it wins its effort to revive patents on its biologic Repatha, and block the sale of competing drugs from Sanofi and Regeneron (NASDAQ:REGN). The issue is how narrowly patents must be written and how different competing drugs must be to avoid violating them.
I have long been a fan of Regeneron thanks to their VelociSuite, which models what potential drugs might do on mice. I think having a system for drug discovery delivers more long-term value than just having a hit drug.
Regeneron was thought to be a COVID play in 2021 with its REGN-COV, but a cut in government funding recently caused it to cut four clinical trials of the drug. It also recently dropped work on medicines for chronic pain and cat allergies.
Factors Influencing R&D Spending. The amount of money that drug companies devote to R&D is determined by the amount of revenue they expect to earn from a new drug, the expected cost of developing that drug, and policies that influence the supply of and demand for drugs.
In this report, the Congressional Budget Office assesses trends in spending for drug research and development (R&D) and the introduction of new drugs. CBO also examines factors that determine how much drug companies spend on R&D: expected global revenues from a new drug; cost to develop a new drug; and federal policies that affect the demand for drug therapies, the supply of new drugs, or both.
The pharmaceutical industry devoted $83 billion to R&D expenditures in 2019. Those expenditures covered a variety of activities, including discovering and testing new drugs, developing incremental innovations such as product extensions, and clinical testing for safety-monitoring or marketing purposes. That amount is about 10 times what the industry spent per year in the 1980s, after adjusting for the effects of inflation. The share of revenues that drug companies devote to R&D has also grown: On average, pharmaceutical companies spent about one-quarter of their revenues (net of expenses and buyer rebates) on R&D expenses in 2019, which is almost twice as large a share of revenues as they spent in 2000. That revenue share is larger than that for other knowledge-based industries, such as semiconductors, technology hardware, and software.
The number of new drugs approved each year has also grown over the past decade. On average, the Food and Drug Administration (FDA) approved 38 new drugs per year from 2010 through 2019 (with a peak of 59 in 2018), which is 60 percent more than the yearly average over the previous decade.
The federal government affects R&D decisions in three ways. First, it increases demand for prescription drugs, which encourages new drug development, by fully or partially subsidizing the purchase of prescription drugs through a variety of federal programs (including Medicare and Medicaid) and by providing tax preferences for employment-based health insurance.
Third, some federal policies affect the number of new drugs by influencing both demand and supply. For example, federal recommendations for specific vaccines increase the demand for those vaccines and provide an incentive for drug companies to develop new ones. Additionally, federal regulatory policies that influence returns on drug R&D can bring about increases or decreases in both the supply of and demand for new drugs.
In real terms, private investment in drug R&D among member firms of the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry trade association, was about $83 billion in 2019, up from about $5 billion in 1980 and $38 billion in 2000.1 Although those spending totals do not include spending by many smaller drug companies that do not belong to PhRMA, the trend is broadly representative of R&D spending by the industry as a whole.2 A survey of all U.S. pharmaceutical R&D spending (including that of smaller firms) by the National Science Foundation (NSF) reveals similar trends.3
Small drug companies (those with annual revenues of less than $500 million) now account for more than 70 percent of the nearly 3,000 drugs in phase III clinical trials.1 They are also responsible for a growing share of drugs already on the market: Since 2009, about one-third of the new drugs approved by the Food and Drug Administration have been developed by pharmaceutical firms with annual revenues of less than $100 million.2 Large drug companies (those with annual revenues of $1 billion or more) still account for more than half of new drugs approved since 2009 and an even greater share of revenues, but they have only initiated about 20 percent of drugs currently in phase III clinical trials.3
Information about the kinds of new drugs the pharmaceutical industry has introduced can be inferred from changes in retail spending across different therapeutic classes of drugs. When ranked by retail spending, therapeutic classes in which many expensive specialty drugs have been introduced over the past decade top the ranking, whereas classes in which the best-selling drugs are now available in generic form rank lower now than they did a decade ago.6 Information about the kinds of new drugs the pharmaceutical industry may introduce in the future can be inferred from clinical trials under way. 59ce067264