Several big pharmaceutical groups are undervalued according to Morningstar: Roche ($RHHBY), Bristol ($BMY), Merck ($MRK) and Pfizer ($PFE). These stocks are expected to grow an average of 5% annually through 2024. The COVID-19 pandemic has so far not had a major negative impact on expected performance.
An expected average growth till 2024
The major pharmaceutical and biotech companies can expect an average growth of close to 5% per year through 2024. Four of them are undervalued, given their new drug pipeline: Roche, Bristol, Merck and Pfizer. That’s what it says in the annual biotech and pharmacy pipeline report by Morningstar’s healthcare analyst team.
The COVID-19 pandemic knows only a limited negative impact on expected growth so far. On the other hand, the profits of a pharmaceutical company will not suddenly skyrocket if they launch a new vaccine against COVID-19 on the market. It’s expected that most pharmaceutical companies will give it a ‘non-profit’ status, and therefore not make a profit on it.
Gilead and Regeneron
This also applies to Remdesivir from Gilead ($GILD) and REGN-COV2, an antibody cocktail from Regeneron ($REGN). Just because Gilead stands out when it comes to the development of COVID-19 drugs, that does not mean that its revenues will increase significantly. Nor will it increase Gilead’s Economic Moat, or direct competitive advantage over other pharmaceutical and biotech companies. However, Gilead’s innovation capacity will be appreciated more after the launch of the COVID-19 products. And the advent of these resources will also reduce the prospect of major price declines at Gilead over the next four years.
Aside from these four, the valuation of Amgen and Bristol shares could well take another leap in 2021, when they launch their new cancer drugs. It would also make sense if more major acquisitions follow in the coming years, like those by Bristol from Celgene and by AbbVie from Allergan.
Much is expected of this in the field of immuno-oncology, with Tecentriq going to be approved as a drug that doctors can prescribe for multiple forms of cancer. According to various analysts, this will yield about $ 11.3 billion up to 2024, instead of the $ 6.4 billion that other analysts previously assumed.
This company has a higher valuation due to its asset Opdivo and the acquisition of Celgene. This will ensure a strong cash flow in 2022, the launch of multiple potential blockbusters in 2021 and a large number of partnerships with other biotech and pharmaceutical companies, with whom Bristol will conduct early-phase research on various drugs.
Is a pharmaceutical company with its drug Keytruda, an immunotherapy prescribed in lung cancer patients, will continue to dominate the market. Furthermore, it is assumed that Merck will receive regulatory approval in the future to prescribe Keytruda for other diseases. Apart from Keytruda, a lot of attention is also paid to Merck because of its vaccine and veterinary medicine branch.
Builds a promising pipeline of drugs offering some form of immunotherapy. This will result in several drugs, such as abrocitinib, which is prescribed for patients with atopic eczema. Finally, three vaccines should ensure extra growth for Pfizer: one against pneumococci, one against intestinal C. difficile and one against respiratory virus RSV.
Other factors we should not forget
For the entire biotech and Big Pharma sector, analysts expect an average of 5% revenue growth over the next 4.5 years (through 2024). At large biotech and pharmaceutical companies, they pay attention to three things. Firstly, on existing medicines for which competition will not arise until after 2024. Secondly, on the drugs whose patent will expire in 2024. And thirdly on the products that are still in the pipeline and that will be on the market in the coming years.
What is striking about this is that most of the 5% revenue growth comes from the arsenal of existing resources, which are now at the top of their growth potential. At the same time, the pipeline looks more promising than at the beginning of last year, when Morningstar published its previous outlook for the biotech and pharmaceutical sector.
The potential of the Big Pharma sector
For the entire biotech and Big Pharma sector, an average of 5% revenue growth is expected through 2024. At large biotech and pharmaceutical companies, they pay attention to three things. Firstly, on existing medicines for which competition will not arise until after 2024. Secondly, on the medicines whose patent will expire in 2024. And thirdly on the medicines that are still in the pipeline and that will be on the market in the coming years.
Most of the 5% revenue growth comes from the arsenal of existing resources, which are now at the top of their growth potential. At the same time, the pipeline looks more promising than at the beginning of last year.
Acquisitions can also affect the growth of the major biotech’s and pharmaceuticals. In the coming years, it is expected that acquisitions around relatively small players will take place rather than large deals such as the recent ones between Pfizer and Wyeth and Bristol and Celgene. That’s because recent major acquisitions have rarely added value. The reason for this is that a major takeover consumes all of the management’s time, leaving less attention for innovation.
The presidential election
The US presidential election is also affecting the drug market. Current President Donald Trump or counterpart Joe Biden, is not expected to come up with policies that drive down drug prices. That chance would have been a lot better if Joe Biden were to join Bernie Sanders as a duo: then a much more aggressive course to push down drug prices would have been more obvious. Now the chance that a Medicare will come to all Americans is less than 10%.