Despite the political uproar over some pharmaceutical pricing, the fact of the matter is that once the political cycle is over, it’s entirely possible a lot of the rhetoric and hyperbole will die down. Politicians love to pick on pharmaceutical companies, and they can be an easy target during campaign season. At the end of the day, they will survive and continue to grow and, best of all, pay dependable dividends.
A new report from SunTrust Robinson Humphrey has an end-of-the-quarter sector update on large cap pharmaceuticals. Five companies are mentioned in the report, and three of them are rated Buy. We highlight the three stocks that are favorites at SunTrust.
This is one of the top global pharmaceutical stocks picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries.
One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which generated $14 billion in sales in fiscal 2015. That was the most any drug has recorded during a single year and represents a gigantic part of the company’s overall earnings. The problem is that biosimilars and generics are itching to enter the market with Amgen leading the charge, and some Wall Street analysts project that AbbVie may have a difficult time stopping that trend.
Back in May, the patent board instituted Coherus BioSciences’ Inter Partes Review against the Humira ‘135 patent. The outcome of the review is expected in 12 months. While most analysts remain positive on Humira duration, the expected litigation uncertainty could continue to create an overhang on the stock, which does give investors chances to pick up shares lower.
The SunTrust team notes that the stock trades at a small discount to its large pharmaceutical peers, and they cite the biosimilar issue as a likely reason why. They also think some on Wall Street are still less than thrilled over the steep price the company paid to buy Pharmacyclics.
AbbVie investors receive a 3.63% dividend. The SunTrust price target for the stock is $85, and the Wall Street consensus target is $71.28 Shares closed Thursday at $62.88.
This is another company with substantial upside potential. Eli Lilly and Co. (NYSE: LLY) is a global health care company with numerous core products in a number of primary-care pharmaceutical markets. The company generates revenues from its pharmaceutical product and animal health segments.
The product portfolio includes Zyprexa (for schizophrenia and bipolar disorder), Gemzar (pancreatic cancer), Evista (osteoporosis), Cymbalta (depression), Cialis (erectile dysfunction), Strattera (attention deficit hyperactivity disorder), Erbitux (cancer) and Alimta (chemotherapy). Eli Lilly also has a strong presence in the diabetes market.