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:
| Name and ticker | Market cap | Dividend yield | Industry |
|---|---|---|---|
| AbbVie (NYSE:ABBV) | $402.4 billion | 2.88% | Biotechnology |
| Eli Lilly (NYSE:LLY) | $1.0 trillion | 0.56% | Pharmaceuticals |
| Johnson & Johnson (NYSE:JNJ) | $498.5 billion | 2.48% | Pharmaceuticals |
| Pfizer (NYSE:PFE) | $146.4 billion | 6.68% | Pharmaceuticals |
1. AbbVie
NYSE: ABBV
Key Data Points
2. Eli Lilly
NYSE: LLY
Key Data Points
3. Johnson & Johnson
NYSE: JNJ
Key Data Points
4. Pfizer
NYSE: PFE
Key Data Points
Choosing the best pharmaceutical stocks
Knowing what to look for can help you identify the best pharmaceutical stocks. The top pharma companies have a few key characteristics in common, including:
- They usually increase their revenue and earnings consistently.
- They have robust pipelines that allow them to offset any revenue declines resulting from patent expirations.
- They are adept at developing new therapies and using existing drugs for new purposes.
- They make smart business development deals that bolster their internal research and development.
How to invest in pharmaceutical companies
The basics of investing in pharmaceutical companies are no different than investing in any stock. Follow these steps to invest in pharma stocks:
- Open your brokerage app: Log in to your brokerage account where you handle your investments.
- Search for the stock: Enter the ticker or company name into the search bar to bring up the stock's trading page.
- Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this stock.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
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.
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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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