The global pharmaceutical market totals roughly $1.7 trillion and continues to grow. This huge sector improves the quality of life for many people while creating attractive opportunities for long-term investors.
Before you invest in pharmaceutical companies, find out some top picks and learn how to choose the best stocks in the pharmaceutical sector.
Four great pharmaceutical stocks to buy right now
Here are some top pharmaceutical stocks for investors to consider:
Company | 2024 Revenue | 2024 Earnings |
|---|---|---|
AbbVie (NYSE:ABBV) | $56.3 billion | $4.3 billion |
Eli Lilly (NYSE:LLY) | $45 billion | $10.6 billion |
Johnson & Johnson (NYSE:JNJ) | $88.8 billion | $14.1 billion |
Pfizer (NYSE:PFE) | $63.6 billion | $8 billion |
1. AbbVie
NYSE: ABBV
Key Data Points
For years, the top-selling blockbuster drug -- defined as one that generates more than $1 billion in annual sales -- for AbbVie (ABBV -0.24%) was Humira, which is approved for treating rheumatoid arthritis and several other autoimmune diseases. However, Humira's sales are sinking as it faces competition after losing patent exclusivity in 2023.
The good news is that AbbVie prepared in advance for the challenges it would face once Humira went off-patent. The company has two successors to Humira on the market: Skyrizi and Rinvoq. Skyrizi already generates sales that are greater than Humira's. The two drugs combined should eclipse Humira's peak annual sales within the next few years.
Meanwhile, AbbVie's lineup features other big winners. Sales for cancer drug Venclexta and antipsychotic medication Vraylar continue to climb. The company's migraine drugs, Qulipta and Ubrelvy, are also enjoying strong market momentum.
Investors also have a lot to like about AbbVie's dividend. The company belongs to the elite group of stocks called Dividend Kings, which have increased their dividends for at least 50 consecutive years. In just the past five years, AbbVie has increased its dividend by almost 40%.
2. Eli Lilly
NYSE: LLY
Key Data Points
Eli Lilly (LLY -0.44%) ranks as the largest healthcare company in the world based on market cap. Lilly vaulted to the top primarily because of soaring sales for its type 2 diabetes drug Mounjaro and obesity drug Zepbound.
These two products (which share the same active ingredient) could be on track to become among the most successful drugs of all time, according to some analysts. Lilly hopes to expand its Mounjaro/Zepbound franchise into other indications as well, including obstructive sleep apnea and heart failure with preserved ejection fraction.
Perhaps the greatest threats to Mounjaro and Zepbound come from Lilly's own pipeline. The company is evaluating two other drugs -- orforglipron and retatrutide -- in late-stage clinical trials targeting diabetes and obesity.
Lilly's lineup includes other successful products, too. Sales continue to soar for cancer drug Verzenio, diabetes drug Jardiance, and autoimmune disease drug Taltz.
3. Johnson & Johnson
NYSE: JNJ
Key Data Points
Johnson & Johnson (JNJ -0.83%) is a healthcare giant that derives the majority of its growth from its pharmaceutical business. J&J boasts a large product lineup that includes immunology drugs Stelara and Tremfya and cancer drugs Darzalex and Erleada.
The company's pipeline features 40 programs in late-stage clinical testing.. These clinical trials are testing new drug candidates and seeking additional approvals for drugs such as Stelara and Tremfya.
Johnson & Johnson spun off its consumer health unit into a stand-alone entity in 2023. This left the company with its two fastest-growing segments -- pharmaceutical and medical devices.
Like AbbVie, J&J is a Dividend King, having raised its annual dividend for 63 consecutive years. The company is also highly resilient, surviving and thriving since beginning operations in 1886.
4. Pfizer
NYSE: PFE
Key Data Points
Pfizer (PFE +0.75%) markets several blockbuster products. These include cancer drugs Ibrance and Xtandi, blood thinner Eliquis (which Pfizer co-markets with Bristol Myers Squibb), Prevnar pneumococcal vaccines, and COVID-19 products Comirnaty and Paxlovid.
The big drugmaker faces some challenges. Its COVID-19 vaccine sales have declined sharply. Several of Pfizer's top-selling products will lose patent exclusivity over the next few years.
However, Pfizer has invested heavily in research and development. The company has also made several key acquisitions, including the purchase of Seagen in 2023. These moves have put Pfizer in a solid position to deliver long-term growth.
The drugmaker's pipeline includes 108 candidates. Almost one-third of these programs are either in late-stage testing or awaiting approval. The company also has promising drugs in earlier-stage development.
Pfizer has long been a favorite among income-seeking investors. Its forward dividend yield is among the highest in the pharmaceutical industry.
Choosing the best pharmaceutical stocks
The top pharma companies have a few key characteristics in common. Knowing what to look for can help you identify the best investments.
The leading pharmaceutical companies generally increase their revenue and earnings on a consistent basis. Pharma companies must always contend with expiring patents and increasing competition, but the best companies have robust drug pipelines that more than offset any decreases in existing revenue streams.
The strength of a drug company's pipeline is perhaps the most important factor. Although pharmaceutical companies have many drugs in various stages of development, most companies only publicize the development of a drug when it advances to clinical testing in humans or is awaiting regulatory approval.
Some clinical trials test new drugs, while others test existing drugs for new uses. The best pharmaceutical companies are adept at both developing new therapies and using existing drugs for new purposes.
The average cost for major companies to develop a new drug is around $2.3 billion, according to Deloitte. The average elapsed time between drug discovery and regulatory approval is 10 to 15 years. But the payoff for developing an effective treatment, especially for a common ailment, can be massive. Owning an important patent can generate significant profits for a pharmaceutical company for many years, with little or no competition from other drugmakers.
How to invest in pharmaceutical companies
The basics of investing in pharmaceutical companies are no different than investing in any stock. First, you'll need to open a brokerage account if you don't already have one. Key things to consider in selecting a brokerage account are the products and services it offers and its ease of use.
Once your brokerage account is established and funded, you're ready to buy stocks. The most important step in doing so is to select the pharmaceutical stock you want to buy. Know the stock's ticker symbol to make sure you select the correct stock.
You'll also need to know how many shares to buy. Divide the amount of money you want to invest by the stock's current share price to determine this number. Most investors will likely prefer to buy a whole number of shares, but several brokerages support buying fractional shares as well.
Your online brokerage account will ask you to choose an order type. Market orders instruct your broker to buy the stock immediately at the best available price. This order type is the simplest one for buy-and-hold investors. The main downside is that stock prices can sometimes move dramatically in a short period of time, so the price you actually pay can be quite different from the price you expected to pay. To avoid this risk, you could place a limit order that specifies the maximum price you want to pay. If the broker can't buy the stock for this price, the order won't be filled.
Risks of owning pharmaceutical stocks
The significant cost and long elapsed time between drug discovery and approval (assuming the drug development process succeeds and regulatory approval is granted) make investing in pharmaceutical stocks relatively risky.
Consider these risk factors before investing in any pharmaceutical companies:
- Potential for clinical failure: Early-stage drug candidates are especially likely to fail, meaning they are proven to be unsafe or ineffective in clinical trials. Even drug candidates in phase 3 testing can ultimately fail.
- Potential failure to win regulatory approval: Even drug candidates that successfully complete clinical testing may fail to win approval from the relevant regulatory agencies.
- Non-reimbursement risks: To achieve commercial success for approved drugs, pharma companies must convince institutional payers, such as public and private health insurers, to reimburse patients for the costs of their drugs. Pharmaceutical companies must also contend with pressure from these payers to set drug prices lower than their targets.
- Product liability and litigation potential: The medical risks associated with pharmaceutical drugs expose drugmakers to liability issues. Companies can be forced to recall drugs from the market due to safety concerns, and lawsuits against pharma companies are common.
As in any industry, pharmaceutical companies face competition from other drugmakers. But competition in this sector can be especially fierce because when patents expire, generic drugmakers are able to produce the same drugs much more cheaply.
Related investing topics
Should you invest in pharmaceutical companies?
Since many pharmaceutical companies pay attractive dividends, these types of stocks are well-suited for income-focused investors. Another great reason to consider buying pharmaceutical stocks is that the U.S. population is aging. With the baby boom generation growing older, many more people in the coming years are likely to need prescription medications.
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