Zacks Industry Outlook Highlights: Valeant, Pfizer, Allergan, AbbVie and Gilead

For Immediate Release

Chicago, IL - November 24, 2015 - Today, Zacks Equity Research discusses the Pharma/Biotech, including Valeant ( VRX ), Pfizer ( PFE ), Allergan ( AGN ), AbbVie ( ABBV ) and Gilead ( GILD ).

Industry: Pharma/Biotech


The pharma/biotech sector has been in the middle of a controversy, with questions being raised about the high prices of drugs. Democratic presidential frontrunner Hillary Clinton's "price gouging" tweet triggered a slide in healthcare stocks in September.

While there has always been concerns regarding the pricing and affordability of prescription drugs, the issue is back in focus following a 5000% price hike implemented by Turing Pharmaceuticals for Daraprim (pyrimethamine) that was approved by the FDA way back in 1953.

Turing had acquired rights to Daraprim this year from Impax Laboratories and reportedly hiked its price from $13.50 to $750 per tablet.

Other companies like Valeant ( VRX ) are also under review for significantly hiking the prices of acquired drugs. Irrespective of who wins the presidential race, drug pricing will remain a topic of discussion among policymakers, the media and the general public.

According to the Aug 2015 Kaiser Health Tracking poll, most Americans (72%) find drug costs unreasonable and 74% are of the view that drug companies put profits before people. So drug companies may find it a bit difficult to justify their high prices by citing the years and funds that go into bringing new treatments to market and the need to invest in R&D to bring additional treatments to market.

M&As Continue

Meanwhile, mergers, acquisitions and deals continue to take center stage in the pharma sector. While 2014 turned out to be one of the most active years in the pharma sector where mergers and acquisitions (M&As) and licensing agreements are concerned, the trend continues this year as well.

Tax inversion deals, which had lost their luster considering new rules imposed by the Treasury Department, are back in focus with Pfizer ( PFE ) making a deal with Ireland-based Allergan ( AGN ) to combine their businesses, creating the world's largest drug company.

AbbVie's ( ABBV ) $21 billion acquisition of Pharmacyclics goes to show that lofty valuations will not deter large companies from pursuing acquisitions to boost their pipelines and product portfolios. Meanwhile, we expect small bolt-on acquisitions to continue. In-licensing activities and collaborations for the development of pipeline candidates have also increased significantly. Several pharma companies are focusing on in-licensing mid-to-late stage pipeline candidates that look promising, instead of developing a product from scratch, which involves a lot of funds and time.

Small biotech companies are open to such deals -- most of them find it challenging to raise cash, thereby making it difficult to survive and continue with the development of promising pipeline candidates. Therefore, it makes sense to seek deals with pharma companies sitting on huge piles of cash.

We recommend biotech stocks that have attractive pipeline candidates or technology that can be used for the development of novel therapeutics. Therapeutic areas attracting a lot of interest include central nervous system disorders and immunology/inflammation.

The hepatitis C virus (HCV) market is also attracting a lot of attention. Another lucrative area is immuno-oncology as these therapies have the potential to change the treatment paradigm for cancer -- they basically use the natural capability of the patient's own immune system to fight the cancer. Major players in this field include Bristol-Myers, AstraZeneca, Merck and Roche.

Deals targeting immuno-oncology are being inked by companies like Pfizer, Merck KGaA, Bristol-Myers, AstraZeneca and Incyte. Companies like Juno and Kite are also advancing in this area. While Celgene's immunotherapy deal with Juno, which is worth at least a billion dollars raised a few eyebrows given the high price tag, the deal just goes to show the growing interest in the field of immunotherapy.

Another trend being witnessed is the divestment of non-core business segments. Companies like Pfizer, UCB, Novartis, Glaxo and AstraZeneca have all been a part of this trend. The monetization of non-core assets allows these companies to focus on their areas of expertise.

Restructuring activities are also gaining momentum as large pharma companies look to cut costs and streamline operations. Most of these companies like Merck, Novartis, Eli Lilly, Shire and Sanofi are re-evaluating their pipelines and discontinuing programs with an unfavorable risk-benefit profile.

New Products Should Deliver

Highly-awaited new products that gained approval last year should contribute significantly to revenues. Gilead's ( GILD ) HCV combination treatment, Harvoni, has already brought in sales of $10.5 billion in the first nine months of 2015.

Other highly anticipated treatments like Opdivo (metastatic melanoma), Viekira (HCV), Esbriet (idiopathic pulmonary fibrosis), Keytruda (melanoma), Orbactiv and Dalvance (skin infections), and Zydelig (blood cancer) were among the 41 new molecular entities (NMEs) and Biologics License Applications (BLAs) approved last year.

Meanwhile, so far in 2015, the FDA has approved 35 NMEs and BLAs. Some of the important new product approvals this year include Vertex's cystic fibrosis treatment, Orkambi, Amgen's heart failure treatment, Corlanor, Pfizer's cancer treatment, Ibrance, Novartis' psoriasis treatment, Cosentyx, PCSK9 inhibitors - Amgen's Repatha and Sanofi/Regeneron's Praluent, Roche's advanced melanoma treatment, Cotellic and Gilead's Genvoya (HIV).

Key regulatory events coming up include the FDA's decision regarding the approval of BioMarin's Duchenne muscular dystrophy treatment, Kyndrisa, Actelion's Uptravi (pulmonary arterial hypertension) and a few product label expansions.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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