Investors interested in the exciting world of healthcare have plenty of options to chose from. Whether it be among the many high-growth, small-cap healthcare companies offering cutting-edge treatments or a more established, large-cap giant, the sector is expected to continue to do well as healthcare costs in countries like the U.S. continue to rise.
However, some healthcare stocks are particularly strong investments at this moment in time. Novartis (NYSE: NVS), AstraZeneca (NYSE: AZN), and Portola Pharmaceuticals (NASDAQ: PTLA) all have highly promising drug candidates on the horizon that could, or already have, become blockbuster treatments.
Healthcare-giant Novartis has done well for itself over the past year, and when taking a look at its drug lineup, it's not surprising. The majority of its top 10 revenue-producing drugs have seen considerable increases over the past quarter. Sales of Cosentyx, Novartis' top-selling drug with $937 million in quarterly revenue, have gone up by 27%. Its third top-selling drug, Lucentis, has seen revenues increase by 5% to $500 million while sales of Entresto have shot up by a whopping 61% over the past quarter, now accounting for $430 million in revenue.
At the same time, there were a number of noteworthy announcements over the past couple of months that should intrigue investors. For one, Novartis revealed impressive phase 3 clinical trial results for its breast cancer drug Kisqali. When taken alongside another endocrine drug, fulvestrant, survival rates for breast cancer patients shot up to 58% in comparison with the normal 46% seen in patients taking fulvestrant by itself. Breast cancer is already a major market, estimated to reach $38.4 billion by 2025, and Kisqali could become a major treatment in the future should it continue to do well.
Novartis was hit with a recent piece of bad news when the U.S. Food and Drug Administration put a hold on its expensive gene-therapy drug candidate, Zolgensma. Regulators found that a high-dose animal test group showed increased inflammation in the spinal nerve cells, a safety concern that has now put the drug in stasis until Novartis responds. Investors might also recall that Zolgensma was the subject of an earlier data manipulation scandal, where scientists from Novartis' subsidiary AveXis, which was responsible for the drug's development, created misleading data prior to the drug's FDA approval.
However, even if Zolgensma ends up getting sidelined for a while, Novartis' other mainline drugs are seeing significant increases in revenue, and its other drug candidates show plenty of promise.
2. Portola Pharmaceuticals
The smallest company on this list, Portola Pharmaceuticals is a relatively unheard-of mid-cap healthcare stock that's getting a fair bit of attention. Growth investors have been sizing up the company's new anticoagulant drug, Andexxa, which is the only therapy in the world that can treat the excessive bleeding that can sometimes be a side effect from the current generation of blood thinners.
While investors not familiar with the subject might think this is an extremely niche market, the reality is that there is an ever-increasing number of hospital visits due to excessive, anticoagulant-induced bleeding. In 2017, there were over 140,000 hospital admissions in the U.S. alone, with the average cost of treating a patient with anticoagulant-induced bleeding coming in at around $100,000.
Due to the lack of convenient treatment options in the market right now as well as the severity of this issue, the FDA quickly awarded Andexxa both a U.S. Orphan Drug as well as a Breakthrough Therapy designation. While it's difficult to gauge the exact market size, Portola's initial $27,500 price point for the drug could lead to a market size somewhere between $3 billion or $4 billion annually, considering the number of hospital admissions.
It's worth noting that other healthcare giants are eager to see Andexxa succeed as well. Johnson & Johnson and Pfizer, both leaders in the anticoagulant space, know that excessive bleeding is a significant complication that might deter some patients from taking their anticoagulants. As such, Andexxa's arrival in the marketplace can help alleviate these fears and encourage further use. Back in 2016, Pfizer provided part of a $50 million loan to Portola to help cover costs to prepare Andexxa for FDA approval. Keeping this in mind, it wouldn't be surprising to see these healthcare giants provide Portola some more financial backing in the future in the unlikely instance it needs further support.
Another high performing large-cap healthcare stock in 2019 is AstraZeneca. Over the past few years, shares of the company have seen significant growth, making the healthcare giant one of the best performing large-cap stocks in the entire sector.
AstraZeneca already has several drugs that are on the cusp of garnering blockbuster status. In short, the company's oncology drugs have been the top-performing area for the company, with overall sales growth increasing by 50% over the past year. Tagrisso has reached $2.3 billion in sales, an 82% increase in comparison to the same time last year. Imfinzi has grown by 182% to $1.05 billion in sales, while Lynparza has grown to $847 million, a 93% increase.
While growth in other areas, such as its respiratory portfolio, came in at a slower 9%, it's worth noting that performance in countries deemed to be 'emerging markets' (which includes China, Russia, and Brazil among other countries) have been exceptional. Considered to be the company's largest region in terms of sales, amounting to 35% of all revenues, overall sales in these countries have increased by 19% over the past year.
With so many parts in motion, it's hard to predict exactly how much AstraZeneca will grow over the coming years, but what does seem to be certain is that the company still has plenty of room to rise. The past couple of months have seen a number of major clinical trial announcements which could result in further regulatory approvals for many of AstraZeneca's therapies. This includes Lynparza's success in treating metastatic castration-resistant prostate cancer as well as Imfinzi's success in delaying the progression of previously untreated metastic non-small cell lung cancer.
The only real issue that some investors might have is that the company is trading at quite a hefty valuation. Compared to Novartis, which has a 17.3 price-to-earnings ratio (P/E), AstraZeneca trades at a hefty 60.9 P/E. While in a perfect world investors might want to wait for prices to fall a little, getting a perfect entry point might be an unreasonable expectation. There are good reasons why AstraZeneca is trading at such as premium, and this is one case where it's justified to pay a little bit extra in terms of valuation metrics for a company this strong.
As for Novartis and Portola, both companies are good investments considering the strength of their drug portfolios. As mentioned above, Novartis trades at a cheaper valuation than the pricier AstraZeneca, and with the Novartis continuing to see impressive clinical trial results for the most part, its treatments are expected to continue growing in scope and revenue. In regards to the much smaller Portola, the likely prospect of this $2 billion market cap biotech adding between $3 billion and $4 billion in annual revenue in the next 12 to 24 months is enough to make it a highly compelling buy at present.
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