Sure, the bull market is now more than 10 years old. Stock valuations, in general, have risen to lofty levels. Some investors might be tempted to sit on the sidelines until better bargains can be found.
The reality, though, is that there are currently quite a few stocks that look like bargains. Many pharma stocks haven't kept pace with the broader market so far in 2019. And some of them appear to be priced attractively.
AbbVie's shares trade at only 8.3 times expected earnings. The stock's price-to-earnings-to-growth (PEG) ratio is a relatively low 1.27. AbbVie claims the No. 1 best-selling drug in the world with Humira. It has several other rising stars in its lineup, too. So why is the drug stock so cheap?
Investors are anxious about declining sales for Humira now that the drug faces biosimilar competition in Europe. Biosimilars to Humira will enter the U.S. market in 2023. With Humira generating 57% of AbbVie's total revenue, there are concerns about whether the company will be able to replace the declining sales from its top drug.
But AbbVie is in better shape than you might think. Sales are soaring for the company's cancer drugs Imbruvica and Venclexta. AbbVie projects that Orilissa will continue to gain momentum in treating endometriosis and pick up an additional indication in treating uterine fibroids, with peak annual sales likely to come in around $2 billion. Recently approved immunology drug Skyrizi is also expected to generate peak sales of at least $2 billion.
AbbVie's pipeline also includes several strong candidates, with upadacitinib especially standing out. The drug beat Humira in efficacy in late-stage clinical studies for the treatment of rheumatoid arthritis. Food and Drug Administration approval for upadacitinib is expected in the next few months. AbbVie thinks the drug could eventually rake in around $6.5 billion annually.
2. Alexion Pharmaceuticals
Alexion Pharmaceuticals also appears to be valued attractively, with a forward earnings multiple of 11.3. The biotech's PEG ratio of 0.84 makes it even more appealing.
Orphan-drug Soliris has fueled Alexion's growth throughout the company's history and still contributes over 80% of total revenue. With the drug getting kind of long in the tooth, you might wonder if the biotech's sales could be in jeopardy. They aren't for a couple of key reasons.
First, Alexion snagged additional patents for Soliris in 2017 that extend protection for the drug through 2027. Also, the company hopes to pick up another indication for Soliris in treating neuromyelitis optica spectrum disorder (NMOSD) with an FDA decision expected later this month.
Second, Alexion recently launched a successor to Soliris. Market research company EvaluatePharma ranked Ultomiris as the top new drug launch of 2019. Ultomiris is currently approved for treating paroxysmal nocturnal hemoglobinuria (PNH). Alexion also hopes to secure approval for its new drug in treating atypical hemolytic uremic syndrome (aHUS). Both PNH and aHUS are key indications for Soliris now. Ultomiris is expected to generate annual sales of close to $3.5 billion by 2024.
3. Vertex Pharmaceuticals
You might scratch your head that Vertex made a list of cheap drug stocks. After all, the biotech stock trades at 28 times expected earnings. But Vertex's tremendous growth prospects give the stock a low PEG ratio of 0.85. If analysts' growth projections pan out, Vertex's current price tag should look like a bargain in hindsight a few years from now.
The good news is that Vertex really should deliver impressive growth for years to come. The biotech's three approved drugs Kalydeco, Orkambi, and Symdeko currently enjoy a monopoly in treating the underlying cause of cystic fibrosis (CF). These drugs treat around 18,000 patients now, but the addressable patient population is 39,000. In addition, Vertex hopes to expand the labels for the drugs to treat younger patients, which could expand the addressable patient population to 44,000.
Just maximizing the potential for its current three drugs gives Vertex a great growth opportunity. But Vertex also has a triple-drug CF combo that will soon be submitted for approval. EvaluatePharma views this combo as the most valuable pipeline asset in the industry right now and thinks it will make around $4.3 billion by 2024 -- more than all three of Vertex's current drugs generate now combined. This triple-drug combo should also enable Vertex to treat another 24,000 CF patients.
Vertex plans to move into indications beyond CF, too. The biotech has a promising pain drug, VX-150, that looked good in a phase 2 study. Its pipeline includes a candidate in phase 1 testing for treating rare genetic disease alpha-1 antitrypsin deficiency (AATD). Vertex also recently moved into the arena for treating Duchenne muscular dystrophy (DMD) and Myotonic Dystrophy Type 1 (DM1) by acquiring Exonics Therapeutics and expanded its partnership with CRISPR Therapeutics.