According to a recent report from the IMS Institute for Healthcare Informatics, total spending on U.S. medicines grew 13.1% in 2014, representing the highest level of growth over the past several years (17% growth in 2001). A record 4.3 billion scrips were filled during the year. The report attributed growth to factors like lessened impact of genericization, higher prices for branded drugs and record spending on new treatment options.
The health care sector will continue seeing new transformative medicines entering the market which should drive spending. 41 novel new drugs were approved in 2014 including 17 first-in-class drugs. So far in 2015, the FDA has approved 11 new molecular entities and new therapeutic biological products. Additionally, about 5 breakthrough therapy designations have been granted so far this year. Therapeutic areas attracting a lot of interest include immuno-oncology, infectious diseases, central nervous system disorders, diabetes and immunology/inflammation.
Meanwhile, the sector, which saw a lot of mergers and acquisitions (M&As) and licensing deals last year, continues to witness more consolidation. The trend will continue as companies look for avenues to lessen the impact of genericization. Moreover, with the FDA approving the first biosimilar in the U.S. earlier this year, biosimilar competition has become a reality.
Specialty pharma companies and biotech stocks that have attractive pipeline candidates or technology that can be used for the development of novel therapeutics continue to garner attention.
A Look at Major Deals So Far in 2015
Valeant Pharmaceuticals International, Inc. VRX acquired specialty pharma company Salix for $173 per share. Salix brings with it innovative gastroenterology treatments such as Xifaxan, Ruconest, Apriso, Uceris and Relistor.
Botox-maker Allergan was acquired by Actavis ACT in Mar 2015 for about $77 billion. With this acquisition, Actavis, which was previously known for its strong presence in the generics market, finds itself in the company of the top 10 pharmaceutical companies across the world based on sales.
Coming up is Pfizer’s PFE acquisition of Hospira HSP which should significantly expand Pfizer's sterile injectable and biosimilar capabilities. Pfizer will also gain access to Hospira’s lucrative biosimilar portfolio of both marketed and pipeline assets.
Just completed is AbbVie’s ABBV acquisition of Pharmacyclics for approximately $21 billion. The deal goes to show that lofty valuations will not deter large companies from pursuing acquisitions to boost their pipelines and product portfolios.
Earnings Trends
The Medical sector performed well in the recently concluded Q1 earnings season exhibiting double-digit gains on the top-line as well as the bottom-line. Earnings were up 19.7% on 10.4% higher revenues.
While the earnings "beat ratio" (percentage of companies coming out with positive surprises) was 78%, the revenue "beat ratio" was 60%.
Overall, 2015 earnings are expected to grow 9.9% and revenues 6.8%. While results will be affected by negative currency movement, new products should start contributing significantly to results and increased pipeline visibility and appropriate utilization of cash should increase confidence in the sector.
3 Drug Stocks to Boost Your Health
In this scenario, here's a look at 3 drug stocks that look well-positioned. We zeroed in on the stocks with the assistance of our new style score system. Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined with Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
Japan based Takeda Pharmaceutical Company Ltd. TKPYY is a Zacks Rank #2 stock with a Growth Style Score of B. The company is on track to deliver its business targets which include focusing on growth drivers like the gastroenterology segment, emerging markets, R&D and financial discipline. The company expects FY2015 to be a turnaround year. Oncology remains a key focus area for Takeda with the company expecting to gain approval for experimental multiple myeloma drug, ixazomib (currently in phase III) in FY2016.
Another interesting company is Anacor Pharmaceuticals, Inc. ANAC, a Zacks Rank #2 stock with a Growth Style Score of A. The Palo Alto, CA based company is focused on the discovery, development and commercialization of novel small-molecule therapeutics derived from its boron chemistry platform. The company has an approved drug in its portfolio – Kerydin for the topical treatment of onychomycosis of the toenails.
Meanwhile, lead pipeline candidate AN2728 is in pivotal phase III studies in patients with mild-to-moderate atopic dermatitis with top-line results expected in the third quarter of 2015. Positive results would allow the company to seek FDA approval in the first half of 2016.
The company’s earnings track record is pretty impressive – Anacor has consistently surpassed expectations over the last four quarters with an average earnings surprise of 27.52%.
Our third pick is global specialty pharmaceutical company Indivior Plc INVVY. A Zacks Rank #1 stock with a Growth Style Score of A, Indivior is focused on the treatment of addictions. Approved products include Suboxone (film and tablet) and Subutex. Pipeline candidates include RBP-7000 (treatment of schizophrenia) and RBP-6000 (monthly depot buprenorphine) among others.
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