Pharmaceutical stocks have been center stage since the start of Covid-19. Biopharma companies have been striving to develop and commercialize life-saving vaccines and antiviral pills to fight the pandemic.
In the past several months, the new omicron variant has particularly prompted long-term investors to reevaluate their 2022 outlook on the pharma industry. Therefore, today I’ll discuss seven pharmaceutical stocks that could create lucrative opportunities in the new year.
With the roll-out of Covid-19 vaccines, many investors expected pharma shares to do extremely well in 2021. Yet, in hindsight, the reality was different. For instance, the Dow Jones Pharmaceuticals Index returned only 10.3% over the past 12 months, falling significantly behind the S&P 500 Index’s gain of 26.9%.
A headwind has been the current political sentiment that questions the pricing practices of big pharma. The prescription drug pricing plan within the Build Back Better bill allows Medicare to negotiate lower prices. If the plan were to pass both chambers of the U.S. Congress, it could significantly hurt the profitability of the industry.
Meanwhile, due to expiring patents and rising competition, successful pharmaceutical stocks need to develop robust drug pipelines that can more than compensate for anticipated declines in their existing revenue streams. Hence, evaluating pipelines of pharma names to determine their long-term growth prospects is important.
With that information, let’s take a look at seven pharmaceutical stocks that offer robust growth prospects in 2022:
- Amgen (NASDAQ:AMGN)
- Bristol-Myers Squibb (NYSE:BMY)
- Eli Lilly (NYSE:LLY)
- Gilead Sciences (NASDAQ:GILD)
- Novocure (NASDAQ:NVCR)
- SPDR S&P Pharmaceuticals ETF (NYSEARCA:XPH)
- United Therapeutics (NASDAQ:UTHR)
Pharmaceutical Stocks: Amgen (AMGN)
52-week range: $198.64 – $276.69
Dividend yield: 3.45%
Amgen is a leading player especially in therapeutics focusing on renal disease and various forms of cancer. In December, investors were also pleased that the U.S. Food and Drug Administration (FDA) approved Tezspire as a severe-asthma drug. Amgen has co-developed it with AstraZeneca (NASDAQ:AZN).
Amgen released Q3 results in early November. Revenue increased 4% year-over-year (YOY) to $6.7 billion. Non-GAAP income stood at $2.66 billion, or $4.67 per share, up 8% YOY from $2.47 billion, or $4.19 per share, a year ago. Further, Amgen generated $2.2 billion of free cash flow during the period. Cash and investments ended the quarter at $12.9 billion, while outstanding debt totaled $37.6 billion.
After the announcement, CEO Robert A. Bradway cited, “Our newest product, Lumakras, a first-in-class lung cancer treatment, is off to a strong start and our robust pipeline of potential new medicines across all stages of development sets us up well to drive growth over the long term.”
Amgen’s pipeline boasts more than 20 drugs in phase 2 or phase 3 clinical trials. Therefore, analysts expect stable earnings per share (EPS) growth in future quarters. Passive income seekers who are also interested in pharmaceutical stocks would be interested to know that Amgen supports a lucrative 3.4% dividend yield.
AMGN stock currently hovers at $225, around the same price it was trading at the start of 2021. Given its growth prospects and high yield, AMGN has a reasonable valuation at 11.7 times forward earnings and 4.7 times trailing sales. The 12-month median price forecast for Amgen stock stands at $230.
Bristol-Myers Squibb (BMY)
52-week range: $53.22 – $69.75
Dividend yield: 3.49% per year
Bristol-Myers develops drugs for a range of illnesses. In late November, the FDA accepted BMY’s submission for a New Drug Application for Deucravacitinib. If accepted, the drug will be used for the treatment of psoriasis.
The pharma group released fiscal Q3 2021 results on Oct 10. Total revenue surged 10% YOY to $11.6 billion. For the period, non-GAAP net income came in at $4.5 billion, or $2.00 per share, compared to $3.7 billion, or $1.63 per share, in the prior-year quarter.
“Our strong results reflect increased adoption of our new product portfolio and continued demand growth across all four core therapeutic areas,” remarked CEO Giovanni Caforio. “Our teams advanced the product portfolio and achieved significant regulatory and clinical milestones.”
Bristol faces patent expirations in its core drugs like Revlimid, Eliquis and Opdivo, implying significant revenue loss in coming years. Therefore, management wants to build a diverse clinical pipeline to offset the financial loss from these patent expirations.
Bristol currently boasts more than 85 collaborations in cardiovascular care, hematology, immunology and neuroscience.
The pharma giant raised its annual dividend by 10.2% and recently added $15 billion to its share repurchase program. BMY stock currently generates a lucrative 3.5% dividend yield.
Given its growth prospects and high yield, BMY stock looks like a bargain, particularly for income investors worried about surging inflation in 2022.
It is currently trading at the same $62 per share it started 2021. Yet, it has a cheap valuation at 7.2x forward earnings and 2.8 trailing sales. Meanwhile, the 12-month median price forecast for Bristol stock is $72.
Pharmaceutical Stocks: Eli Lilly (LLY)
52-week range: $161.78 – $283.90
Dividend yield: 1.42%
Pharma heavyweight Eli Lilly focuses on neuroscience, endocrinology, oncology and immunology. In December, Wall Street was pleased to hear potentially good news on pirtobrutinib, which is in clinical trials for treating mantle cell lymphoma.
Eli Lilly is also conducting clinical trials for various treatments against obesity, kidney disease and sleep apnea.
The company released solid Q3 2021 results on Oct. 26. Revenue for the period came in at $6.77 billion, up 18% YOY. Net income soared 37% YOY on a non-GAAP basis to $1.76 billion, or $1.94 per share, up from $1.29 billion, or $1.41 per share, in the prior-year quarter.
On the metrics, CEO David A. Ricks remarked, “Revenue attributable to our newer medicines grew more than 35 percent and represented nearly 60 percent of our core business, an important indicator of our long-term growth potential.”
Analysts note Eli Lilly has been benefiting from positive momentum across all segments, implying continued earnings growth for 2022. Management now anticipates surpassing $28 billion in sales for the current fiscal year, including $2.1 billion from its Covid-19 antibody treatment.
Furthermore, the company is expecting to launch five new drugs over the next two years. In June, Donanemab received the FDA’s Breakthrough Therapy designation for the treatment of Alzheimer’s disease. Another one is the type 2 diabetes drug Jardiance. The drug was approved in August to minimize the risk of cardiovascular death for most heart failure patients.
LLY stock hovers at $260 territory, up 58% over the past year. It seems like plenty of growth is already baked into the stock price at 28.7 times forward earnings and 8 times trailing sales. Therefore, interested investors could consider waiting for a dip to buy LLY shares. The 12-month median price forecast for the shares stands at $300.
Gilead Sciences (GILD)
52-week range: $56.56 – $74.12
Dividend yield: 3.91%
Biopharma name Gilead Sciences focuses on diseases such as HIV, viral hepatitis, influenza, and cancer. In addition, its portfolio includes a promising coronavirus treatment, Veklury, formerly known as Remdesivir.
Gilead announced Q3 2021 results in late October. While total revenue increased 13% YOY to $7.42 billion, total revenue excluding Veklury declined 3% to $5.4 billion. Non-GAAP net income was $3.34 billion, or $2.65 per diluted share, compared to $2.66 billion in the prior-year quarter. Cash and marketable debt securities ended the quarter at $6.8 billion.
On the results, CEO Daniel O’Day cited, “This was a very strong third quarter with continued positive momentum for both our commercial performance and our pipeline progress.”
Gilead’s near-term growth primarily relies on revenue generated from Veklury. Around half of the hospitalized patients in the U.S are currently treated with the drug. Recent Phase 3 results indicate that Veklury can decrease the risk of hospitalization or death among patients by 87%. The FDA is currently evaluating these results.
Wall Street suggests Veklury could help create significant shareholder value for Gilead investors. And management has recently raised its 2021 fiscal year non-GAAP earnings per share forecast to come in between $7.90 and $8.10, up from previous estimates of $6.90 and $7.25.
GILD stock currently hovers at $72.50 per share, up 28% over the past year. Its valuation at 9.9 times forward earnings and 3.2 times trailing sales suggest there could be further gains in store. The 12-month median price forecast for Gilead stock stands at $75.
Pharmaceutical Stocks: Novocure (NVCR)
52-week range: $74.90 – $232.76
Oncology group Novocure is developing a cancer treatment centered on a therapy called TTFields, which uses electric fields that disrupt cancer cell division.
The company is the manufacturer of Optune, a battery-powered and FDA-approved device that brain cancer patients use to prevent the reproduction of cancer cells.
Novocure released fiscal Q3 2021 results in late October. Revenue increased 1% YOY to $133.6 million. Net loss came in at $13.1 million, or 13 cents loss per diluted share, compared to a net income of $9.3 million, or 9 cents per diluted share, in the prior-year quarter. Cash and equivalents ended the period at $690 million.
“We recently completed enrollment in our phase 3 INNOVATE-3 trial and our phase 2 EF-31 trial, and announced a new collaboration with global oncology leader, Roche,” CEO Asaf Danziger remarked after the announcement.
Wall Street is concerned that sales of Novocure devices appear to be flatlining. After reporting a modest profit for the first time in 2020, growing research and development expenses have led to significant losses in 2021.
Meanwhile, Novocure is currently waiting for results from a pivotal trial with pancreatic cancer patients in 2024. In addition, management will receive data from its ovarian cancer trial in 2023. Finally, a pilot study with stomach cancer patients could provide results next year.
With a market capitalization (cap) of 47.8 million, Novocure is a small company whose shares are volatile. In fact, 2021 has not been a good year for investors.
Since hitting an all-time high this summer, shares have lost 65% of their value. Therefore, potential investors should appreciate the risk/return profile of the stock before hitting the ‘buy’ button.
NVCR stock currently hovers in the $70 territory, down about 55% over the past year. Shares trade at 16.3 times trailing sales, while the 12-month median price forecast for NVCR stock stands at $115.
SPDR S&P Pharmaceuticals ETF (XPH)
52-Week Range: $43.58 – $56.32
Dividend Yield: 0.95%
Expense Ratio: 0.35% per year
Our next discussion centers around an exchange-traded fund (ETF), namely the SPDR S&P Pharmaceuticals ETF. The fund started trading in June 2006.
Recent metrics indicate that the global pharma revenues totaled $1.27 trillion in 2020. As of November 2021, the U.S. accounted for 40% of the total pharmaceutical sales worldwide. Therefore, allocating a portion of a long-term portfolio to pharma shares could be key for most retail investors.
XPH, which has 48 holdings, tracks the S&P Pharmaceuticals Select Industry Index. The leading ten names account for about 46% of net assets of $228.3 million.
Leading holdings include drug manufacturing giants Eli Lilly and Pfizer (NYSE:PFE), clinical-stage biopharmaceutical company Atea Pharmaceuticals (NASDAQ:AVIR), Bristol-Myers Squibb, and Viatris (NASDAQ:VTRS).
In the past 12 months, XPH is down over 11%. Price-to-earnings (P/E) and price-to-book (P/B) ratios stand at 9.58x and 2.79x, respectively. Interested readers could consider buying the fund around these levels.
Pharmaceutical Stocks: United Therapeutics (UTHR)
52-week range: $150.73 – $218.38
Biotechnology group United Therapeutics develops “orphan drugs” for neurological and cardiovascular diseases and transplant-related treatments.
Without government assistance and incentives including tax credits, user fee exemption and as many as seven years of market exclusivity after approval these drugs would not be profitable to develop for such pharma names.
United Therapeutics issued solid Q3 2021 results on Nov 3. Revenue grew 17% YOY to $445 million. For the period, non-GAAP net earnings soared 14% YOY to $198 million, or $4.16 per diluted share, up from $173 million, or $3.88 per diluted share, in the prior-year quarter. Cash and marketable investments ended the quarter at $3.5 billion.
The pharma name is well-known for its treprostinil-based products, used “for the treatment of pulmonary arterial hypertension.” Q3 revenue from these products, which includes Tyvaso, Remodulin, and Orenitram, grew by $46.1 million YOY.
“Referrals for Tyvaso remain strong, and we’re well on our way toward our goal of reaching 6,000 U.S. patients on Tyvaso by the end of 2022,” cited President Michael Benkowitz.
As many of these patients have no choice but to rely on United Therapeutics, the company generates a consistent stream of cash. Wall Street expects UTHR to grow both the top line and EPS in the next fiscal year.
UTHR stock hovers at $210, up 38% over the past 12 months. Shares are trading at 11.2 times forward earnings and 5.3 times trailing sales. And the 12-month median price forecast for UTHR stock stands at $240.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.