The recently ended fourth-quarter earnings season was a mixed bag for the drug and biotech sector. Most companies beat estimates for earnings while missing the same for sales or vice versa. However, some companies have not only been able to beat consensus estimates but also guide better than market expectations for 2022.
The last year was probably one of the worst for the biotech sector for reasons unexplained, especially when the broader stock market hit all-time highs. While 2022 began with the S&P 500 Index reaching an all-time high, it has plummeted 11.7% year to date mainly due to uncertainty stemming from the impacts of the Omicron-related surge in infections earlier and now the Russia-Ukraine conflict and surge in oil prices. Concerns are rising over higher inflation and an overall slowing down of economic growth.
The biotech sector is also feeling the impact of overall market volatility. The Zacks
Large Cap Pharmaceuticals
industry is down 3.8% this year so far compared with the S&P 500’s decline of 11.7%.
Image Source: Zacks Investment Research
However, we expect the drug and biotech sector to rebound once the overall market recovers due to its strong fundamentals, an expected pick-up in M&A activity, including possible mega-mergers and positive pipeline and regulatory updates
Here we have highlighted three bigshot drugmakers,
J&J
JNJ
,
AbbVie
ABBV
and
Merck
MRK
which have outperformed the industry this year and are good stocks to hold for the next few monthsand beyond. A chart showing the share price movement of these companies this year so far is given below.
Image Source: Zacks Investment Research
You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Merck
Merck’s stock has risen 0.4% this year so far against a decrease of 3.8% for the
industry
Earnings estimates for 2022 have gone up from $6.87 to $7.28 per share while those for 2023 have moved from $6.68 to $7.18 per share over the past 60 days
Merck’s fourth-quarter results were strong as it beat estimates for both earnings and sales, unlike several other pharma companies. Its revenues rose 24% year over year in the fourth quarter, driven by additional sales from its oral COVID drug, molnupiravir, increased demand for its cancer drugs and HPV vaccines, and higher sales of Animal Health products. The company anticipates robust growth in revenues and profits to continue in 2022.
Merck’s key drugs like Keytruda, Lynparza and Bridion have been driving sales. Keytruda sales are gaining from the continued uptake in lung cancer and increasing usage in other cancer indications. In fact, in 2022, Keytruda sales growth is expected to be driven by increased expansion in the ex-U.S. market and the continued ramp-up of launches globally.
Beyond oncology, which is expected to drive durable growth in the next decade, Merck has important products in its portfolio, including the Gardasil vaccine to prevent HPV-related cancers. Sales of the Gardasil vaccine grew 40% in 2021. Merck expects Gardasil sales to double by 2030.
In addition, Merck’s Animal Health business is a key contributor to its top-line growth as the company is recording above-market growth and the trend is expected to continue in 2022.
Merck and partner Ridgeback Biotherapeutics’ oral antiviral pill, molnupiravir will be a key top-line driver in 2022. It was authorized for treating high-risk adults with mild-to-moderate COVID-19 in several countries worldwide in 2021. Merck has a number of supply and purchase agreements in place for providing approximately 10 million courses of the COVID therapy, expected to generate $5 billion to $6 billion in revenues in 2022. Molnupiravir is in late-stage development for post-exposure prophylaxis of COVID.
Merck boasts a strong cancer pipeline, including Keytruda, which should help drive long-term growth. Numerous recent approvals and the expected launch of many additional indications, including in earlier lines of therapy, can further boost sales.
Merck currently carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
AbbVie
AbbVie’s stock has risen 9.8% this year so far. Earnings estimates for 2022 have gone up from $14.09 to $14.18 per share while those for 2023 have moved from $12.20 to $12.50 per share over the past 60 days
AbbVie’s fourth-quarter results, announced last month, were mixed as it beat estimates for earnings while missing the same for sales. However, its sales rose 7.4% year over year driven by the immunology and aesthetics franchises. Its oncology franchise is also contributing to sales growth. Its financial outlook for 2022 is also quite encouraging.
Humira continues to witness strong demand trends in the United States despite new mechanisms of action and competition from indirect biosimilars.
Among AbbVie’s other immunology medicines, Skyrizi and Rinvoq demonstrated differentiated clinical profiles versus Humira and are already contributing meaningful revenues, including $4.6 billion in combined sales in 2021. Both Skyrizi and Rinvoq were approved for active psoriatic arthritis in 2021/early 2022. Rinvoq was also approved for atopic dermatitis. With such new indications coming in the next couple of years, sales of these drugs could be higher and have the potential to replace Humira when generics are launched in 2023.
In 2022, AbbVie expects its immunology sales to grow in double digits, including U.S. Humira growth of 8%, Skyrizi global sales of $4.4 billion and Rinvoq global sales of $2.7 billion.
AbbVie expects combined sales of Skyrizi and Rinvoq to be more than $15 billion by 2025.
In its oncology franchise, the strong growth of Venclexta sales is making up for lower U.S. sales of J&J-partnered Imbruvica. U.S. sales of Imbruvica are being hurt by lower new patient starts in CLL due to a slower-than-expected market recovery from the pandemic and increasing competition from newer therapies.
Strong share performance across all approved indications is boosting sales of Venclexta/Venclyxto.
In 2022, Imbruvica global revenues are expected to be approximately $5.4 billion. The Imbruvica guidance assumes recovery of the CLL market, which is expected to be partially offset by share erosion from increased competition. Venclexta global sales are expected to be approximately $2.3 billion.
Robust demand for Botox Cosmetic and Juvederm is boosting sales of AbbVie’s aesthetics franchise, helped by a strong recovery from the pandemic. Some of AbbVie’s newer medicines like Ubrelvy and Qulipta have started off well and sales are expected to pick up in 2022.
AbbVie also has an impressive late-stage pipeline with several early/mid-stage candidates that have blockbuster potential. Several data readouts are expected in 2022, which could be catalysts for the stock. AbbVie has a Zacks Rank of 3.
J&J
Though J&J’s stock is down 0.8% this year so far, it has still outperformed the industry. Earnings estimates for 2022 have gone up from $10.28 to $10.50 per share over the past 60 days.
J&J beat fourth-quarter estimates for earnings while missing the same for sales. J&J also issued an encouraging financial guidance for 2022 despite COVID impacts and hospital staff shortages in the Medical Devices unit, and supply constraints and inflationary pressure in the Consumer segment.
Its Pharma unit is performing at above-market levels, supported by its blockbuster drugs, Darzalex and Stelara and contribution from newer drugs, Erleada and Tremfya and its COVID-19 vaccine. J&J continues to expect its Pharmaceutical business to deliver market-leading sales growth in 2022, driven by drugs like Darzalex, Tremfya, Stelara, Erleada and the newly launched Rybrevant.
Sales of the Consumer unit are improving, withstanding external supply constraints.
As far as its Medical Devices segment is concerned, the Omicron variant softened recovery trends in medical and surgical procedures, especially toward the end of the fourth quarter. The negative impact is expected to continue in the first half of 2022. However, J&J expects the market recovery to accelerate as the year progresses as global health systems treat new patients and work through procedure backlogs. The market recovery coupled with contribution from new product launches is expected to lead to better performance in the second half of 2022. J&J launched 20 major products in 2021.
J&J is making rapid progress with its pipeline and line extensions. Several pivotal data readouts are expected in 2022. J&J also plans to take a more aggressive stance for M&A activity as It expects its strong cash position to help it pursue tuck-in M&A to grow its business.
J&J has a Zacks Rank #3.
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