NEW YORK (AP) -- A group of Jefferies & Co. analysts said Tuesday that drug companies are putting more emphasis on restructuring and spinning off parts of their business, and that those moves will be a critical factor in stock performance in 2013 and 2014.
Large drug companies have been hurt over the last few years by a huge wave of patent expirations on top-selling medications, which allowed cheaper, copycat versions to reach the market. The analysts said the companies have recently raised their dividends, which leaves restructuring and separations as a path to better stock performance for some drugmakers. Some companies, including Abbott Laboratories Inc. and Pfizer Inc., have already made those kinds of changes.
The analysts said their top pick among European pharmaceutical companies is Novartis AG, the world's largest drugmaker, followed by Sanofi. Their top U.S. pick is Abbott Laboratories Inc. The analysts said Novartis has the greatest potential for strong stock performance and the biggest potential gains from restructuring, and Abbott should have faster growth starting in late 2013.
The Jefferies analysts upgraded shares of Merck & Co. and Bayer HealthCare to "Buy" from "Hold" and upgraded Eli Lilly and Co. to "Hold" from "Underperform."
"Merck & Co. is likely to be forced into restructuring by investors as the pharmaceuticals business underperforms," Jeffrey Holford, Ian Hilliker and Terence McManus said in a note to clients.
Merck said it is pleased with the performance of its animal health and consumer health businesses. Novartis did not immediately respond to an email seeking comment.
They said targets for spinoffs include consumer health and animal health businesses. Some companies have already made those kinds of moves: on Jan. 1 Abbott spun off AbbVie, its former prescription drug unit. Abbott's business model is now built around generic drugs, medical implants and nutritional formula. AbbVie markets the blockbuster anti-inflammatory drug Humira and other branded drugs.
Pfizer sold its nutrition business to Nestle SA for $11.5 billion in November, and in February it spun off its animal health business, now called Zoetis Inc.
Merck, of Whitehouse Station, N.J., reported almost $1 billion in restructuring costs in 2012, and Pfizer took $791 million in restructuring charges and acquisition costs.
Shares of Merck rose 85 cents to $48.01 in morning trading, and shares of Eli Lilly gained 71 cents to $54.85. Novartis shares lost $1.17 to $73.19 and Abbott Laboratories stock picked up 58 cents to $38.34.