Large-cap pharmaceutical companies will see revenue growth hit a peak during 2016 and 2017, followed by a wave of patent expirations in the closing three years of the current decade, an analyst said Monday.
"Investors should consider protecting their portfolios against a sector de-rating" that could come in 2016, Piper Jaffray's Richard Purkiss said in a note recently.Revenue growth will resume in the early 2020s, driven by four new drug classes, each of which may generate $15 billion in annual revenue 10 years from now, according to Purkiss.
Caution! Overweight
Over a shorter term, Wall Street earnings consensus is "overly cautious" on the following stocks, says Purkiss:- Pfizer Inc. PFE
- Eli Lilly and Co LLY
- AbbVie Inc ABBV
Other Pharma Ratings
Purkiss rates Merck & Co., Inc. MRK at Neutral with a $65 target and Bristol-Myers Squibb Co BMY at Underweight with a $60 target.
Recovery
An increase in regulatory approvals for new drugs in the last few years "is beginning to stimulate a wider recovery" in revenue growth for pharmaceutical companies, according to Purkiss.
Although a so-called patent cliff looms later in the decade, Purkiss said four new drug classes will reignite growth in the 2020s.
New Classes On The Horizon
Promising new classes include a group of heart disease drugs called CSK9 inhibitors, which may benefit:
- Amgen, Inc. AMGN
- Regeneron Pharmaceuticals Inc REGN
- Pfizer
Disease-modifying Alzheimer's therapies may stimulate the long-term outlook for the following:
- Lilly
- Biogen Inc BIIB
- AstraZeneca plc (ADR) AZN
- Pfizer
- AstraZeneca
- Merck
- Roche Holding Ltd. (ADR) RHHBY
Purkiss also stated that in the upcoming decade, cancer drugs classed as CDK inhibitors might boost revenue for:
- Pfizer
- Lilly
- Novartis AG (ADR) NVS
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