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Zacks Industry Outlook Highlights: AbbVie, Allergan, Pfizer, Juno and Johnson & Johnson - Press Releases

For Immediate Release

Chicago, IL – July 22, 2015 – Today, Zacks Equity Research discusses the Pharmaceuticals, including AbbVie (ABBV), Allergan (AGN), Pfizer (PFE), Juno (JUNO) and Johnson & Johnson ( JNJ).

Industry: Pharmaceuticals

Link: https://www.zacks.com/commentary/51621/pharma-stock-outlook---july-2015

Deals & New Products in Focus

Mergers, acquisitions and deals continue to take center-stage in the pharma sector. While 2014 turned out to be one of the most active years in the pharma sector where mergers and acquisitions (M&As) and licensing agreements are concerned, the trend continues this year as well.

M&As Continue

Although tax inversion deals, which were being actively pursued earlier, have lost their luster considering new rules imposed by the Treasury Department, M&As continue to play a major role in the pharma and biotech sector and are not showing any signs of slowing down.

AbbVie’s (ABBV) $21 billion acquisition of Pharmacyclics is one of the biggest deals to be announced in recent times. The deal goes to show that lofty valuations will not deter large companies from pursuing acquisitions to boost their pipelines and product portfolios. Other major deals include the ones involving Actavis – Allergan (AGN), Shire - NPS Pharmaceuticals, Endo - Auxilium, and Pfizer ( PFE) - Hospira.

Meanwhile, we expect small bolt-on acquisitions to continue. In-licensing activities and collaborations for the development of pipeline candidates have also increased significantly. Several pharma companies are focusing on in-licensing mid-to-late stage pipeline candidates that look promising, instead of developing a product from scratch, which involves a lot of funds and time.

Small biotech companies are open to such deals -- most of these companies find it challenging to raise cash, thereby making it difficult for them to survive and continue with the development of promising pipeline candidates. Therefore, it makes sense for them to seek deals with pharma companies sitting on huge piles of cash.

We recommend biotech stocks that have attractive pipeline candidates or technology that can be used for the development of novel therapeutics. Therapeutic areas attracting a lot of interest include central nervous system disorders, diabetes and immunology/inflammation. For example, Celgene recently signed a $7.2 billion deal for the acquisition of Receptos that will strengthen its presence in the immune-inflammatory diseases market.

The hepatitis C virus (HCV) market is also attracting a lot of attention. Another lucrative area is immuno-oncology as these therapies have the potential to change the treatment paradigm for cancer -- they basically use the natural capability of the patient's own immune system to fight the cancer. Major players in this field include Bristol-Myers, AstraZeneca, Merck and Roche.

Deals targeting immuno-oncology are being inked by companies like Pfizer, Merck KGaA, Bristol-Myers, AstraZeneca and Incyte. Companies like Juno ( JUNO) and Kite are also advancing in this area. While Celgene’s immunotherapy deal with Juno, which is worth at least a billion dollars raised a few eyebrows given the high price tag, the deal just goes to show the growing interest in the field of immunotherapy.

Another trend being witnessed is the divestment of non-core business segments. Companies like Pfizer, Abbott, UCB, Novartis, GlaxoSmithKline and AstraZeneca have all been a part of this trend. The monetization of non-core assets allows these companies to focus on their areas of expertise.

Restructuring activities are also gaining momentum as large pharma companies look to cut costs and streamline operations. Most of these companies like Merck, Novartis, Eli Lilly, Shire and Sanofi are re-evaluating their pipelines and discontinuing programs with an unfavorable risk-benefit profile.

New Products Should Deliver

Highly-awaited new products that gained approval last year should contribute significantly to revenues. Gilead’s HCV combination treatment, Harvoni, is expected to bring in multi-billion dollar sales for the company. The highly lucrative obesity market got a new player with Orexigen’s Contrave gaining FDA approval. Meanwhile, it proved to be third time lucky for MannKind with the company finally gaining approval for diabetes product, Afrezza.

The FDA also said yes to Celgene’s blockbuster hopeful Otezla and Amgen’s leukemia drug, Blincyto. Products like Medivation’s Xtandi and AbbVie’s Imbruvica gained label expansions.

Other highly anticipated treatments like Opdivo (metastatic melanoma), Viekira (HCV), Esbriet (idiopathic pulmonary fibrosis), Keytruda (melanoma), Orbactiv and Dalvance (skin infections), and Zydelig (blood cancer) were among the 41 new molecular entities (NMEs) and Biologics License Applications (BLAs) approved last year.

Meanwhile, so far in 2015, the FDA has approved 17 NMEs and BLAs. Some of the important new product approvals this year include Vertex’s cystic fibrosis treatment, Orkambi, Amgen’s heart failure treatment, Corlanor, Pfizer’s cancer treatment, Ibrance and Novartis’ psoriasis treatment, Cosentyx. Key regulatory events coming up include the FDA’s decision regarding the approval of Regeneron/Sanofi’s PCSK9 inhibitor Praluent, Amgen’s Kyprolis (cancer) and Repatha (PCSK9 inhibitor) and a few product label expansions.

Biosimilars in Focus

With the FDA approving the first biosimilar in the U.S. (Zarxio, a biosimilar version of Amgen’s blockbuster drug, Neupogen), the floodgates have opened. While biosimilars have been available in the EU for quite a while, there was no regulatory pathway for biosimilars in the U.S.

Biosimilars should cut healthcare costs and provide a large number of patients with access to much needed biologic treatments. According to information provided by Express Scripts, about $250 billion could be saved in the next decade (2014 – 2024) if biosimilars for 11 products including Neupogen, Avastin, Epogen, Humira, Neulasta, Remicade and Rituxan are approved. According to the company, Neupogen biosimilars alone represent potential savings of about $5.7 billion.

However, at present, there is low visibility on the pricing of biosimilars in the U.S. Unlike generics, which are sometimes priced at even a 90% discount to the branded drug, biosimilars are usually sold at a 20%-30% discount to the price of the reference drug. So, it could be a while before biosimilar sales actually pick up and meet industry expectations.

Apart from Novartis, companies like Merck, Amgen, Hospira, Biogen and Allergan are targeting the highly lucrative biosimilars market.

Earnings Trends

The Q2 earnings season has just started for the Medical sector with Johnson & Johnson ( JNJ) reporting better-than-expected results. Looking at consensus earnings expectations for 2Q, earnings in the Medical sector are expected to grow 7.2% and revenues 6.9%. 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.

Overall, 2015 earnings are expected to grow 10.1% and revenues 7.4%. For a detailed look at the earnings outlook for the Medical and other sectors, please check our Zacks Earnings Trends report.

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ABBVIE INC (ABBV): Free Stock Analysis Report
 
ALLERGAN PLC (AGN): Free Stock Analysis Report
 
PFIZER INC (PFE): Free Stock Analysis Report
 
JUNO THERAPEUTC (JUNO): Free Stock Analysis Report
 
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
 
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