Investors often have a love-hate relationship with Big Pharma stocks. We love them for their substantial dividend payouts, healthy share buybacks, and incredible cash flow, but loathe the fact that their branded products have a finite period of patent protection. Plus, some product portfolios and pipelines are in better shape than others.
With that, and a long-term mindset, on tap, we asked four of our analysts to choose one Big Pharma stock they would buy and hold over the next 20 years. Here's what they had to say.
Buy and hold a pharmaceutical stock for 20 years when taking into account patent exclusivity losses -- am I nuts? Sort of. But that's why I'd turn to Big Pharma and healthcare conglomerate Johnson & Johnson (NYSE:JNJ).
Johnson & Johnson is a pharmaceutical giant, but it's also one of the largest medical device and healthcare consumer product companies in the world. Although medical devices and consumer products are relatively slower-growth vehicles, they offer decent pricing power that should translate into consistent long-term cash flow as global populations grow older and increase in size.
More importantly, though, Johnson & Johnson has a long trail of success in its pharmaceutical segment. Between 2009 and mid-2014, J&J introduced 14 new drugs for a variety of therapeutic indications that netted $12.5 billion in cumulative sales. Furthermore, in 2014 a quarter of its $74.3 billion in total revenue (this includes all three segments) came from new products.
Johnson & Johnson has a long time left on exclusivity for type 2 diabetes therapy Invokana and cancer drug Imbruvica, which was co-developed with Pharmacyclics. Inovkana is designed to block glucose absorption in the kidneys as opposed to via the pancreas or liver, while Imbruvica in clinical trials produced remarkably high response rates in patients with mantle cell lymphoma and chronic lymphoblastic leukemia. Peak annual sales estimates for Invokana could easily top $1 billion, while Imbruvica might breach $7 billion assuming additional indications are added.
Johnson & Johnson also isn't afraid to throw its cash around if it spots a potential blockbuster drug in development. Collaboration is what nabbed Imbruvica, and it could turn Geron's imetelstat into a myelofibrosis superstar.
Finally, there's Johnson & Johnson's 52-year streak of raising its dividend. With an estimated payout ratio of 45% based on Wall Street's consensus 2015 earnings-per-share forecast, it appears years of dividend increases are still to come.
If you're looking for a healthy dividend with a "set it and forget it" mentality, then Johnson & Johnson might be your stock.
Much can happen over 20 years, particularly in the fast-moving world of pharmaceuticals where patents are always expiring and new therapies are always vying for market share.
Although that means today's leaders might not be tomorrow's leaders, I believe Bristol-Myers Squibb (NYSE:BMY) could be a solid bet for the long haul. The company is in the midst of a restructuring that should allow it to boost margins over time, and it is launching top-selling drugs that could generate billions of dollars to reinvest back into its product pipeline.
Among Bristol-Myers' best-sellers are the cancer drug Yervoy and the anticoagulant drug Eliquis. Last year, sales of Yervoy grew 36% to $1.3 billion, while Eliquis sales jumped from $146 million in 2013 to $774 million in 2014. Those are solid performers, but Bristol-Myers' new cancer drug, Opdivo, could be an even bigger seller. Bristol-Myers has won approval for Opdivo's use in advanced melanoma and lung cancer patients, and ongoing trials could expand the drug into other indications. That has analysts thinking Opdivo could enjoy peak sales of $5 billion or more per year. If so, Bristol-Myers could be a top pharmaceutical stock for long-term investors.
Although 20 years is a rather lengthy period of time to forecast future growth in the highly competitive world of pharmaceuticals, AstraZeneca (NYSE:AZN) looks like a top-notch pick for investors looking to park their money in a Big Pharma for the duration.
The British pharma is pivoting away from former top sellers such as Nexium and Crestor, and toward next-generation drugs in the high-growth areas of diabetes and cancer. Because AstraZeneca has yet to fully transition into these high-growth markets, however, its year-over-year earnings cratered by 28% in the fourth quarter, missing the consensus estimate by over 10%.
Once these turbulent times are over, though, Astra should be set up for a lengthy period of growth. On the diabetes front, last year Astra bought out Bristol-Myers Squibb's interest in the two companies' former diabetes alliance, giving it control over important new drugs including Farxiga/Forxiga and Bydureon that have a long period of growth ahead.
But investors should pay most attention to Astra's major push into the field of immuno-oncology. By 2020, immuno-therapies could rake in an estimated $35 billion in sales and compose about 40% of all cancer treatments.
Astra has thus accelerated development of its early stage clinical assets in this area by launching nearly 30 clinical trials, many of which are studying powerful combination therapies. The company believes it can grow revenue by 70% by 2023, to $45 billion, fueled mainly by potential star immuno-oncology drugs such as Medi4736.
Ultimately, I believe this stock deserves the attention of investors willing to take the long view.