In the event of another market crash this year, healthcare investors will benefit in the long term from having bought shares of rock-solid pharmaceutical companies while they're less expensive. In my view, pharmaceutical companies demonstrate their value by maintaining profitable operations over time, developing strong domain expertise within the markets for their drugs, and by consistently increasing their market share. While companies with these properties might still suffer during a market crash, they're also in the best position to bounce back.
Both of the pharmas I'll discuss today meet the above criteria. Before diving in, though, there's an important caveat to consider. These stocks will likely expand over time, but they aren't growth-phase companies. They're mature and established competitors -- and that's what makes them sturdy in the midst of a crash.
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Alexion Pharmaceuticals
Regardless of short-term price movements in the stock market, Alexion Pharmaceuticals (ALXN) has a profitable portfolio of therapies for rare diseases that will continue to drive consistent revenue over the next few years. Alexion's core business is durable, as patients with rare diseases typically do not have a plethora of substitute therapies to choose from.
What's more, for diseases like myasthenia gravis (a neuromuscular condition), Alexion makes several different drugs and combination therapies, so its market share is quite large. Out of 80,000 patients with myasthenia gravis in the U.S., Alexion is on track to treat as many as 28,000 of them with its products by 2025. For another rare condition, paroxysmal nocturnal hemoglobinuria (PNH, a disease of the red blood cells), as of July the company had accomplished its goal of treating 70% of the total patient population in the United States.
To build on these successes, Alexion is pursuing additional clinical trials for the medicines it has already developed so that they can be used in a wider and wider patient population within the target disease. The synthesis of these factors is that Alexion is a powerful competitor within its domains, and it is constantly consolidating its position.
Alexion has also signaled that it plans to implement an aggressive share repurchasing strategy wherein at least one-third of the company's free cash flow will be spent on repurchases between 2021 and 2023. Given that its year-over-year quarterly revenue growth is 20%, it's reasonable to expect that free cash flow will be increasing from the trailing 12-month level of $1.7 billion. This means investors who purchase the stock before the next market crash will have a favorable starting position -- one that will subsequently see another tailwind for expansion as a result of ongoing drug development and sales revenue growth.
Johnson & Johnson
The venerable Johnson & Johnson (JNJ -1.15%) is so large that it has multiple domains of expertise in which its drug development pipeline has paid off over time. Between its collection of three medicines for pulmonary hypertension and its six ongoing clinical trials to expand their indications, it's no surprise that the company's disease segment earned $2.6 billion in 2019 alone. Likewise, Johnson & Johnson's portfolio of four oncology drugs brought in 8.6% more revenue in 2019 than 2018 as a result of a number of growth-oriented clinical trials.
Management is also skilled at getting its drugs approved in international markets. The company operates with equal proficiency in the U.S. and the E.U., and its sales in the Asia-Pacific region remain strong, growing by 4.9% last year. When paired with its aggressive indication-expanding trials, J&J's international expertise is a key component of its growth engine. It also helps the company to hedge against economic downside risk, as its geographical segments are unlikely to be contracting at the same rate at the same time.
Likewise, Johnson & Johnson's history of paying back its shareholders with ever-increasing dividends and share buybacks doubtless makes it a favorite for long-term investors. Especially if the market tanks, the company's promise of continuous dividend growth could lure back sellers and help the price recover faster. In the March crash, the stock recovered promptly in less than a month, and if its history of competence in its major markets is any indication, it will recover quickly next time, too.
