In the past 10 years, the pharmaceutical industry's performance has lagged well behind that of the broader market. The SPDR S&P Pharmaceutical Index ETF, an industry benchmark, is up by 107% in the past decade, less than half what the S&P 500 has returned in the same period. What's the reason behind this poor showing? It could be that investors are worried about a complete overhaul of the entire healthcare industry, which has been the goal of several prominent U.S. politicians.
Or perhaps the backlash some drugmakers have experienced regarding their pricing practices has some investors running for the hills. That said, the pharmaceutical industry remains an excellent place to look for quality stocks to buy. Two pharma giants worth adding to your portfolio are Pfizer (PFE 0.23%) and AstraZeneca (AZN 1.03%). Here's why these two drugmakers are worth holding onto for the next decade.
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1. Pfizer
In the past couple of years, Pfizer has gone through a bit of a makeover. The company shed both its consumer healthcare segment and its off-patent medicine unit. Both businesses were struggling to generate growing revenue -- and, as a result, harming the company's bottom line. Pfizer is now laser-focused on its biopharma business, which is performing splendidly.
Leading the drugmaker's lineup is its COVID-19 vaccine, Comirnaty. In August, it became the first of its kind to earn regulatory approval from the U.S. Food and Drug Administration. Pfizer expects to generate $33.5 billion in revenue from Comirnaty this year.
For some context, the drugmaker reported total revenue of $41.9 billion in 2020. Analysts expect the company's top line to come in at $69.9 billion next year, which suggests that Pfizer will continue to benefit from its crown jewel well into 2022. The drugmaker could even see some windfall from Comirnaty well beyond next year.
But Pfizer's business goes beyond its coronavirus-related work. The pharma giant's lineup also includes cancer drug Ibrance and anticoagulant Eliquis. Sales of the former grew by 4% year over year in the second quarter to $1.4 billion while revenue from Eliquis jumped by 16% to $1.5 billion.
Other products, including cancer drugs Xtandi and Inlyta, are also contributing meaningfully to Pfizer's top line. Even with immunosuppressant Xeljanz facing regulatory headwinds due to safety concerns, Pfizer's current lineup is strong enough to continue thriving.
That's not even including the company's rich pipeline of several dozen programs, including 23 in phase 3 studies. Thanks to new additions and label expansions, Pfizer will continue expanding its revenue base. The company has earned more than half a dozen regulatory approvals in the U.S. and abroad so far this year.
Given its current lineup, future pipeline, and attractive valuation -- the stock trades at 11.1 times forward earnings vs. 14.5 for the industry -- Pfizer looks well on its way to beating the market in the next 10 years.
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2. AstraZeneca
U.K.-based AstraZeneca also boasts an impressive list of medicines with fast-growing sales. The drugmaker may not have made nearly as big an impact on the COVID-19 vaccine market as it expected, but it has been making its mark in other areas.
One of those fields is cancer. In the first half of this year, sales of the company's oncology products increased by 19% year over year to $6.4 billion. Among its leading cancer medications are Tagrisso, Imfinzi, and Lynparza, which all saw solid sales increases. Thanks to patents that won't expire until the 2030s for Tagrisso and Imfinzi, AstraZeneca should continue to see growing sales from these medicines.
Diabetes drug Farxiga has also been an important contributor. Used to treat type 2 diabetes, Farxiga generated $1.4 billion in the first half of this year, 60% higher than the year-ago period.
To bolster its lineup, the company recently acquired rare diseases expert Alexion Pharmaceuticals in a cash and stock deal valued at $39 billion; the transaction closed in July. The company expects stronger top-line growth, better margins, and greater cash flow generation thanks to this deal.
Alexion Pharma already had an exciting lineup and pipeline. The company held a monopoly in the market for drugs that treat two rare blood disorders called paroxysmal nocturnal hemoglobinuria and hemolytic-uremic syndrome. Before being acquired, Alexion Pharma's management had told investors to expect 10 new product launches by 2023.
Combine that with AstraZeneca's existing portfolio and the next decade looks bright for the company. AstraZeneca is currently trading at just 12.9 times forward earnings, making the company reasonably valued when looking at the broader pharmaceutical sector. It remains an excellent pharma stock to buy and hold for a long time.
