The year 2017 has turned out to be pretty impressive for the pharma/biotech stocks. Though the industry was hampered by drug pricing issues in 2016, it bounced back and made a considerable headway in 2017, courtesy of a slew of FDA approvals. The regulatory body approved 46 novel drugs last year, easily surpassing 2016's total tally of 22.
Particularly, large-cap players in the industry raked in stellar returns, up 15.8% in the last 12 months. Nonetheless, the same space also posted a 5.2% decline in 2016.
Upbeat quarterly results, rise in demand for new product sales, successful innovation and product line expansion, strong clinical study results as well as a continued strong performance of legacy products propelled the large-cap drug sector to scale new highs in 2017. Moreover, these tailwinds are expected to drive the sector's growth in 2018.
Meanwhile, jubilant Republicans have of late passed the tax overhaul bill for the first time in 30 years. The bill slashes corporate tax rates from 35% to 21%. Such tax reduction is likely to further boost profit margins of these companies with more cash left in hand. This, in turn can also be used for striking strategic deals this year, which were relatively fewer in 2017.
Notably, the Large Cap Pharma sub-industry carries a Zacks Industry Rank of #104, placing it among the top 39% of the 265 plus Zacks industries. Our backtesting shows that the top 50% of the Zacks ranked industries outperforms the bottom half by a factor of more than two to one.
Banking on such positive trends, investing in sound large-cap pharma stocks this year seems judicious. We have therefore identified three Large Cap stocks based on a favorable combination of a solid Zacks Rank #1 (Strong Buy) or 2 (Buy) and a strong VGM Score of A or B. These stocks are backed by sound fundamentals and ensure a steady stream of cash inflows.
Back-tested results show that only stocks with an impressive VGM Style Score of A or B when combined with a bullish Zacks Rank of 1 or 2, offer the best upside potential.
Below are the selected three companies, poised to continue their winning streak this year:
AbbVie Inc. ABBV
This Illinois-based biopharmaceutical company is a lucrative option. The stock has a Zacks Rank #2 (Buy) and a VGM Score of B. Shares of the company have soared 57.9% in a year's time. Moreover, the stock's earnings and sales are further estimated to increase 18.2% and 11.8%, respectively, in 2018.
These positive trends were supported by a series of positive news in the past few months. AbbVie presented promising data from several pivotal studies, gained key regulatory approvals and settled its Humira patent disputes with Amgen AMGN .
With several pivotal data readouts and regulatory milestones expected in 2018, the bullish run of the stock is expected to continue this year.
Novo-Nordisk A/S NVO
We also recommend Novo Nordisk, the Denmark-based global healthcare company and a leader in the worldwide diabetes market. Shares of the company have surged 51.2% in a year's time. Moreover, the stock's earnings and sales are further estimated to increase 5.3% and 1.5%, respectively, in 2018.
Currently the stock, with VGM Score of B, carries a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Novo-Nordisk has been in news for the past few months based on the encouraging progress of its diabetes pipeline. In December 2017, Novo Nordisk announced that the FDA has approved its semaglutide once-daily pre-filled pen to improve glycaemic control in type II diabetes patients. It will be marketed by the trade name of Ozempic.
The company expects to launch Ozempic in the United States in the beginning of 2018. Meanwhile, in September, the FDA had approved Fiasp (fast-acting insulin aspart) for treating adults with diabetes.
In August, the FDA had approved label expansion of the company's diabetes drug, Victoza, now approved to reduce the risk of major adverse cardiovascular events in adults with type II diabetes.
The company's label expansion efforts and the corresponding approvals bode well for its growth.
Roche Holding AG RHHBY
Investors can count on Switzerland-based Roche Holding with a VGM Score of B. The company is a Zacks #2 Ranked player with its shares having gained 10.1% in the last 12 months.
Roche dominates the breast cancer space with strong demand for its HER2 franchise drugs like Herceptin, Perjeta and Kadcyla. The company also has a dominant position in lung cancer market.
The company is looking for a label expansion of drugs namely, Actemra, which was approved for the treatment of giant cell arteritis last May. This is the sixth FDA approval for Actemra since the medicine was launched in 2010.
Moreover, the recent FDA approval of Hemlibra for routine prophylaxis to prevent or reduce the frequency of bleeding episodes in patients with haemophilia A is encouraging. Also, the potential acquisition of Ignyta - announced a couple of weeks earlier - is likely to strengthen Roche 's pipeline as the integration will add a mid-stage cancer candidate entrectinib to its portfolio.
Continuous label expansions of key drugs, regular approvals and a robust pipeline are expected to drive the stock in 2018.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Roche Holding AG (RHHBY): Free Stock Analysis Report Novo Nordisk A/S (NVO): Free Stock Analysis Report AbbVie Inc. (ABBV): Free Stock Analysis Report Amgen Inc. (AMGN): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research