Despite massive gains for the Democrats in the midterm elections in the House of Representatives and on the state level, the Republicans managed to hold onto the Senate. This is good for big pharmaceutical stocks (if bad for pharmaceutical users). Had the Democrats won both the House and Senate, scrutiny over drug pricing and the actions of the largest pharmaceutical companies would have resumed. But that is not what happened.
The Republicans took control of the Senate while the Democrats have the House. This also means that the Affordable Care Act won’t be repealed anytime soon — so more consumers are insured and able to get healthcare. And with both pharmaceutical stocks and healthcare plan providers both trading higher the day after the elections, markets may correctly anticipate healthy profits ahead in this sector.
Here are six big pharmaceutical stocks to consider.
Teva Pharmaceutical (TEVA)
Teva Pharmaceutical (NYSE:TEVA) reported third-quarter revenue of $4.54 billion. Though it lost $0.27 a share (GAAP), free cash flow was a positive $0.7 billion. Teva is a monster player in the generic drug space, but its big acquisition of Actavis Generics left the company with plenty of debt. But management embarked on a restructuring program, and spending fell by $1.8 billion since the start of the year.
In Q3, Teva earned approval for AJOVY and launched it. The drug is the first and only anti-CGRP treatment for preventing migraine in adults. Austedo, a drug for treating tardive dyskinesia in adults and chorea associated with Huntington’s disease, continued growing nicely. Austedo and Ajovy were major growth drivers for Teva’s Specialty business. Teva owes the growth in Austedo to the availability of samples for doctors within 24-48 hours after they are ordered through retail and specialty pharmacies.
AJOVY demand grew steadily in the quarter. The convenient quarterly and monthly dosing likely drew a healthy level of prescriptions. Teva also put extra care in providing customers with the best experience, from the moment they are in the physician’s office through to the accessing and administrating process for the product.
Financials are looking better this year. Teva ended 2017 with $32.5 billion in gross debt and $1 billion in cash. By Sep. 30 gross debt had fallen to $29.5 while cash rose to $1.9 billion. As debt levels fall and revenue stabilizes, Teva, which rose nearly 20% on the week of its earnings report, could continue moving higher.
AbbVie Inc. (NYSE: ABBV) recently hiked its dividend from $0.96 a share to $1.07. The dividend is payable on February 2019. In Q3, adjusted earnings grew 50% Y/Y to $2.14. Adjusted operational sales grew 18.5%, thanks to strong performance of AbbVie’s portfolio. This includes Humira, growing 10% and Imbruvica, growing over 40% Y/Y.
Management was so confident in its outlook that it raised its 2018 earnings guidance again — for the fourth time this year! ABBV now expects FY 2018 adjusted earnings coming in at $7.90 to $7.92 a share, which represents annual growth of 41%. This solid outlook lifted the stock higher by around 12% on the week ended Nov. 8. Though this rally in ABBV stock is impressive, it still has a long way to go. Shares are down by over 30% from yearly highs. It trades at a P/E of 20 times, which is low given the drugs in the pipeline. Risankizumab and upadacitinib will both launch in 2019. Again, management is confidence with these two products because they expect them to drive growth. These products also add to the portfolio of drugs having three to four years of a ramp-up phase.
Elagolix is another product whose revenue potential is in the multi-billion-dollar range. Orilissa, which AbbVie recently launched, is meeting expectations. Looking ahead, the firm has plenty of products set for approval. The most immediate product worth mentioning is upadacitinib, a drug treating rheumatoid arthritis. Management is on track to submit a regulatory application for upadacitinib by the end of the year.
Sanofi (NYSE: SNY), whose shares closed recently at yearly highs, reported third-quarter results on Oct. 31 that sent the stock from a $42 low to $45. Investors have good reason to bid shares higher because company sales grew 6.3% year-over-year while EPS rose 11.2% to EUR 1.84. Sanofi’s acquisition of Bioverative contributed to the solid quarterly results. Products in the vaccines and rare blood disorders spaces also contributed. Sales in Specialty Care, Vaccines, and CHC rose the most of all units — 14.9%. Sanofi owes the strength in Specialty Care to products like Pompe (up 13.7%) in the rare diseases space and Aubagio (+13%) in the multiple sclerosis space.
In the immunology unit, Dupixent, which treats atopic dermatitis, blew past expectations in Q3 by growing in all possible metrics. Prescriptions grew 16% sequentially, while trade inventory held steady at ~ 4 weeks. Dupixent is now available in 13 countries. Sanofi launched the drug in four countries during the Q3 period. Looking ahead, the TAM — total addressable market — will only get bigger as the drug gets FDA approval for treatment in adolescents.
Amgen’s (NASDAQ: AMGN) Q3 revenue grew 2.3% from last year to $5.904 billion. However, sales for many key products fell. Sales of Neulasta fell 6.4%, Enbrel fell 5.2%, and Sensipar/Mimpara sales fell 10.5% Conversely, Prolia and Repatha sales rose 14.7% and 34.8%, respectively.
Amgen raised its revenue guidance to as high as $23.5 billion and EPS guidance as high as $12.55. The outlook is good despite the company’s challenges ahead. While revenue will grow 15% Y/Y, Amgen will adjust for weaker non-GAAP operating income by watching its spending levels in R&D. It will invest just enough in its products and pipeline to drive growth and maximize shareholder value.
Management expected for some time that drug prices will come under pressure in this industry. Similar to other pharmaceutical stocks, Amgen has several products in the pipeline. Prolia sales continue to build momentum globally. The TAM may expand as the drug potentially treats osteoporosis. Repatha sales will improve as Amgen opens up access and improves patient affordability.
Similar to Teva launching a drug for migraine treatment, Amgen has Aimovig, whose launch is already showing positive momentum.
Amgen is competing other drug firms through its launch of biosimilars in Europe. Eight more biosimilar programs are in development and are important drivers to the company’s long-term growth sustainability.
Biogen Inc. (NASDAQ: BIIB) reported third-quarter earnings on Oct. 23. Non-GAAP EPS came in at $7.40 and revenue rose 11.7% from last year to 3.44 billion. Biogen also introduced a $3.5 billion share repurchase program.
Biogen specializes in neurological diseases. Its strategy involves growing its core Multiple Sclerosis business. Spinraza sales grew in the U.S. and did even better outside of this region. Spinraza added $468 million to revenue as patients on therapy in the U.S. grew 12% sequentially (from Q2). Overall, the MS division delivered $2.3 billion in revenue in Q3. Ocrevus royalties added $137 million but were not enough to offset the 3% drop in MS revenue.
In the area of Alzheimer’s Disease and dementia, Biogen presented the data at a CTAD (Clinical Trials and Alzheimer’s Disease) meeting. There, it discussed the safety and efficacy of aducanumab, a monoclonal antibody.
Looking ahead, the Humira biosimilar launch in the Q4 will make some contribution to the business. But this takes time. Biogen signed big contracts in Europe; the revenue will not have much impact yet in the fourth quarter. This should not matter to the long-term investors because as the business grows, revenue will grow nicely.
Despite reporting lower revenue Allergan (NYSE: AGN) raised its revenue and EPS guidance for 2018. This suggests Allergan, known for its Botox cosmetics, faced slower activity in Q3 due to seasonality. Revenue fell 3% Y/Y to $3.911 billion. Botox Cosmetic revenues increased by 13.6% to $879.7 million. Alloderm revenue rose 24%, albeit, at around $106 million, this was a small part of the business.
Value investors will find AGN stock more compelling after the share price fell following earnings. Performance suffered in the quarter because of a recall on Ozurdex in certain international markets. This setback will probably prove temporary because Allergan self-identified the issue and addressed it. Unfavorable currency exchange, LOEs, and pressure from payers, which is felt industry-wide, also added to the third-quarter weakness.
Allergan continued to invest in its pipeline by acquiring Bonti. Bonti is a clinical-stage biotech firm that specializes in fast-acting neurotoxin programs. This should complement nicely with the company’s Botox business.
Looking ahead, with the restructuring complete, Allergan is expected to hold an operating margin of at least 48.7%. The debt reduction of $750 million in the third quarter, plus $450 million in share buyback, should lead to meaningful EPS growth. This assumes the Botox and Vraylar business continues growing.
Disclosure: The author does not own shares in any of the companies mentioned.\