Because Covid-19 has dominated the news cycle for almost two years, many investors have ignored drug stocks outside of that domain. Betting on vaccine suppliers like Moderna (NASDAQ:MRNA) or BioNTech (NASDAQ:BNTX) has paid off — those stocks more than tripled at their peak. Since August, buying interest in these stocks has waned. The drop in those drug companies suggests that drug stock investors will seek better value. They will diversify their holdings by finding drug stocks to buy that are still on sale.
Investors can reduce their risk by considering a basket of drug companies that work on other diseases. The pandemic may re-emerge, which would benefit companies that sell antivirals or vaccines, but their stock prices already trade at a premium. Value investors should look at these seven drug companies with underperforming share prices.
Markets have ignored the prospects of these seven companies:
- Amgen (NASDAQ:AMGN)
- AstraZeneca (NASDAQ:AZN)
- Bristol-Myers Squibb (NYSE:BMY)
- Horizon Therapeutics (NASDAQ:HZNP)
- Novartis (NYSE:NVS)
- Vertex Pharmaceuticals (NASDAQ:VRTX)
- Viatris (NASDAQ:VTRS)
AstraZeneca and Horizon have the highest growth score. Viatris scores the lowest with a 64/100. Conversely, AstraZeneca and Bristol-Myers have fair quality scores. Both firms are digesting large acquisitions.
As AstraZeneca and Bristol-Myers realize synergies, cut costs and launch new products, their quality scores will improve.
Drug Stocks to Buy: Amgen (AMGN)
Amgen traded at over $240 for most of the first half of the year before falling in August. In the second quarter, the company viewed its stock as undervalued and bought back 6.5 million shares for $1.6 billion.
In the third quarter, the company disappointed investors by issuing total revenue guidance in the range of $25.8 billion to $26.2 billion. It will earn up to $10.21 a share. AMGN stock fell despite posting a solid Q3 performance. Earnings per share (EPS) fell by only 3% to $3.31, due to a $400 million licensing-related expense. The collaboration cost with Kyowa Kirin is a near-term cost that will pay off in the future. AMG 451 is an atopic dermatitis drug that the pair is developing. Amgen posted positive data for the anti-OX40 human monoclonal antibody.
Investors should realize the market size for atopic dermatitis treatment is massive. Regeneron (NASDAQ:REGN) posted $1.66 billion in quarterly Dupixent sales in its third quarter. Amgen is on the verge of following Regeneron’s success with a blockbuster.
Media coverage for AstraZeneca intensified during the Covid-19 pandemic. The media scared people about the side effects of AZN’s vaccine. At launch, the company decided to sell the vaccine to countries as goodwill. It would not make a profit.
The policy changed in the last quarter. The company spent three cents a share to develop the vaccine. It signed money-making deals in Q3, though its vaccine will remain non-profit for developing countries.
In Q3, AZN posted EPS of $1.08 (non-GAAP). Revenue grew by 50% to $9.866 billion. These figures include its acquisition of Alexion. AstraZeneca is banking on its rare disease portfolio from Alexion to fuel its future growth. In the near term, the firm is cutting costs without reducing research and development. In the coming years, expect Alexion to bring transformative therapies to patients. For example, Alexion is collaborating with Caelum Biosciences to develop light chain amyloidosis (CAEL-101).
AstraZeneca’s late-stage pipeline included eight positive phase-III trial results since June. Furthermore, it reported the approval of Saphnelo in the US for treating systemic lupus erythematosus.
Drug Stocks to Buy: Bristol-Myers Squibb (BMY)
Bristol-Myers Squibb is perpetually in value territory. Before August, BMY stock sustained a healthy uptrend.
BMY’s Opdivo (nivolumab) is a potential blockbuster drug for treating lung cancer. On Nov. 8, it announced positive results for Opdivo plus chemotherapy treatment. The safety profile of the treatment was consistent with previously reported studies.
To fuel growth and enrich its pipeline, Bristol-Myers may hunt for small and medium-sized deals. The Chief Executive Officer, Giovanna Caforio, did not consider the acquisition of MyoKardia for $13.1 billion to be a large deal. Shareholders disagree. BMY stock is bracing for another deal. Markets typically punish companies acquiring firms. They worry that the company overpaid.
Still, Bristol-Myers could buy an emerging biotech firm with a promising pipeline. Nektar Therapeutics (NASDAQ:NKTR) is trading at new lows and could benefit from a buyout.
Horizon Therapeutics (HZNP)
When Horizon Therapeutics posted third-quarter results, it increased its full-year 2021 net sales guidance. Markets did not react positively to the developments.
Horizon posted net sales grew by 63% year-over-year to $1.037 billion. It achieved a net income of $326.5 million from record sales of Tepezza and Krystexxa. Tepeza reduces eye-bulging and double vision and accounted for $616.4 million in net sales.
The company announced five new programs and development-stage candidates. This included Daxdilimab (HZN-7734) and Dazodalibep (HZN-4920). It has 10 new medicine or new indication approvals set for the second half of the decade.
Executive Vice President, Research & Development Liz Thompson said that the company is expanding its pipeline by acquiring and developing medicines in autoimmune and severe inflammatory diseases. It will leverage its internal research, foster research-based partnerships and collaborate with firms. This will maximize Horizon’s rate of innovation.
The company expects sales growth of Tepezza in the mid-30% range in 2022. Strong demand from the chronic population will lift the uptake of the drug. When Horizon posts updates to the clinical study, the market should finally recognize the stock’s undervaluation. HZNP stock trades at a forward price-to-earnings ratio of below 20 times.
Drug Stocks to Buy: Novartis (NVS)
In September, Novartis stock fell below its $92 support level and dropped below the 50-day moving average. It announced that patients showing chronic spontaneous urticaria (CSU) symptom control were 44.1% with ligelizumab 72 mg. Angelika Jahreis said “these Phase II results are encouraging as they speak to the benefits of symptom control as reported directly by patients.”
In the third quarter, Novartis posted revenue growing by 6.3% YoY to $13.03 billion. For the year, the company expects net sales growth in the low to mid-single-digit percentage. Sales of Cosentyx and Entresto will be at least $7.0 billion and $5.0 billion, respectively. Drug stock investors may not want to pay the 2.7 times P/E-to-sales. Yet Johnson and Johnson (NYSE:JNJ) or Proctor & Gamble (NYSE:PG) have higher PEGs.
Novartis sold its stake in a consumer healthcare joint venture in 2018. JNJ and PG are about to sell the consumer division, earning a better return. Still, as Novartis posts strong sales of its drugs, the stock will trend higher.
Vertex Pharmaceuticals (VRTX)
In the cystic fibrosis market, investors are wary of Vertex’s phase-2 candidate. Trikafta is one of Vertex’s top-selling drugs.
In the third quarter, product revenue was $1.98 billion, up almost 30% from last year. Trikafta accounted for the strong performance. The company launched the drug for children ages 6 to 11. Strong uptake of Kaftrio, which treats patients aged 12 years and above with CF, also added to results. Reimbursement began in France and Italy and should lift 2022 results. For 2021, Vertex is guiding total product revenue at between $7.4 billion and $7.5 billion.
Vertex secured new reimbursement agreements in key markets like Canada, Italy and France. This will lift the revenue growth for Trikafka in the coming quarters. It still needs to secure agreements for the younger age groups (ages 6 to 11) outside of the U.S. When that happens, VRTX stock could trend higher.
Vertex offers investors exposure to growth in transformative medicines that treat CF. It is investing heavily to strengthen its pipeline. Furthermore, it allocated its capital to embrace tools and technologies for treating the disease.
Vertex is developing an mRNA-based treatment with Moderna to treat Type 1 diabetes. It will deliver the drug to bronchial epithelial cells.
Drug Stocks to Buy: Viatris (VTRS)
In the generic drug market, Viatris, which is a merger between Upjohn and Mylan, is losing investor interest. The stock pays an annual 44 cent dividend (it traded ex-dividend on Nov. 22).
Net sales topped $4.54 billion while Viatris posted a cash flow of $965 million. CEO Michael Goettler said the company will raise its 2021 guidance. It expects revenue as high as $17.9 billion.
To increase shareholder value, Viatris’ Board of Directors needs to raise its dividend payout policy to 25% of free cash flow. Its drug pipeline for biosimilars will increase the company’s profit margins. Once approved, Viatris may pay off its debt sooner while rewarding its shareholders with income.
CEO Michael Goettler said it expects its biosimilar, Semglee, will be available in pharmacies before the end of this year. This is a key milestone that will increase patient access to insulin. In the future, it will be first-to-market for its Botox biosimilar to Eylea. Viatris generated $158 million in new product revenue in Q3. Expect the full-year new product revenue to top $690 million.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.