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Is Pharma the Sector to Bet on in 2020? 2 Big Stocks to Buy

Kinjel Shah

The coronavirus pandemic is having a devastating impact on the global economy. As the United States tries to contain the outbreak through lockdown, life has been dealt a huge blow and so has the economy. The S&P 500 Index has declined 17.55% this year so far while the Dow Jones Industrial Average is down 20.5%.

While all the sectors/industries have been affected by the economic slump, some have been badly hit. The industries hit hardest by coronavirus in the United States are retail, restaurants, gaming, transportation and travel.

The pharma and biotech sector has not been spared of the sell-off either with shares of almost all big drugmakers trading at 20-30% below their peak prices last year.

There is a concern about supply chain disruptions, caused by the outbreak, hurting drug/biotech companies’ first-half earnings. Also, with half of the world under a lockdown, a delay is expected in completion of clinical studies and regulatory reviews, which could further delay drug approvals and their launch, thereby hurting drug and biotech companies.

However, all eyes are on the industry in the hope of a cure. The outbreak may bring in new appreciation for the industry as several drug/biotech companies are working on making new antibodies, drugs and vaccines to combat the disease. Around 20 companies are working on making coronavirus treatments or vaccines. The list includes bigger names like Gilead GILD and J&J JNJ as well as smaller biotechs like Moderna MRNA. Though a treatment for COVID-19 is expected to be available this year, a vaccine is expected to be available for widespread use not before next year.

The whole world has pinned hopes on pharmaceutical and biotech companies for making drugs and vaccines to help combat COVID-19. Meanwhile, recession risks have risen as coronavirus cases rise around the world. The pharma and biotech sector is considered a defensive sector as it is not much impacted by a recession. This is because people will continue to buy medicines during difficult times as well.

The Zacks Large Cap Pharmaceuticals industry, comprising some of the biggest drugmakers in the world, has declined 10.6% this year so far. However it has well outperformed the Zacks S&P 500 decline. Moreover, the Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #35, which places it in the top 14% of more than 250 Zacks industries.

In this scenario, investing in stocks of large drugmakers is a prudent move, given the fact that they control a large portion of an industry. Here we have highlighted two stocks that may prove to be good buys. Both these stocks carry a Zacks Rank #1 (Strong Buy) and have seen their share price rise this year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron Pharmaceuticals REGN

Regeneron is one of the few large biotech companies that has gained from the coronavirus crisis. Regeneron has identified hundreds of virus-neutralizing, fully human antibodies from which it will select the top two antibodies to develop a cocktail treatment to treat or prevent COVID-19. It plans to initiate large-scale manufacturing with antibody cocktail therapy by mid-April. Meanwhile, Regeneron and partner Sanofi SNY have begun phase II/III studies both in and outside the United States to evaluate IL-6 inhibitor, Kevzara to treat patients hospitalized with severe infection due to COVID-1.

Meanwhile, Regeneron’s key drugs — Eylea and Dupixent — have strengthened its product portfolio on continued label expansions. Its immuno-oncology platform, which includes Libtayo and a wide portfolio of bispecific antibodies, is progressing well with key candidates like evinacumab and pozelimab, among others.

Regeneron’s shares are up 34.3% this year so far.

 

 

Though its earnings estimates for 2020 have declined 3.9% in the past 30 days, those for 2021 have gone up by 2.2% over the same time frame.

Eli Lilly & Company (LLY)

Lilly was one of the few drug companies, which reported strong fourth-quarter results in January, beating estimates for both earnings and sales. The company had also slightly raised its 2020 revenue guidance back then and re-affirmed its outlook last month.

In 2020, Lilly’s revenue growth is expected to be driven by higher demand for key drugs like Trulicity, Jardiance, Taltz, Verzenio, Basaglar, Emgality as well as newly launched Baqsimi and Reyvow.

Lilly is making significant pipeline progress with several positive late-stage data readouts and multiple regulatory updates scheduled for 2020. Lilly expects to launch two medicines, selpercatinib for RET-altered cancers and Ultra-rapid Lispro/ultra-rapid acting insulin for type I and type II diabetes in 2020. Meanwhile, relatively newer drugs are also being evaluated for additional indications/label expansions, which can drive sales in the future quarters. Lilly is also regularly adding promising new pipeline assets through business development deals

Its shares have risen 7.4% this year so far.

 

 

Though its earnings estimates for 2020 have remained unchanged in the past 30 days, those for 2021 have gone up by a cent from $7.93 to $7.94 per share.

Conclusion

Once the uncertainty surrounding the pandemic subsides, the focus of pharma investors will shift on the fundamentals and future prospects of companies before investing in them. Needless to say, both these companies enjoy strong product portfolios and solid pipelines, which should boost their long-term growth.

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Johnson & Johnson (JNJ) : Free Stock Analysis Report
 
Regeneron Pharmaceuticals, Inc. (REGN) : Free Stock Analysis Report
 
Sanofi (SNY) : Free Stock Analysis Report
 
Gilead Sciences, Inc. (GILD) : Free Stock Analysis Report
 
Moderna, Inc. (MRNA) : Free Stock Analysis Report
 
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