Buy These Leading Pharma Companies

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A recent EvaluatePharma report estimated the market for prescribed drugs will increase at an annual rate of 3.8% to $895 billion from 2012 to 2018. New patents and improvement in research and development will bolster companies’ portfolios, while a growing population and better access to healthcare will be key factors driving the market size for drugs. Pharmaceutical companies are working hard to capitalize on the growing market. Three such pharmaceutical companies should be of interest to investors. These companies have promising drugs for the treatment of cancer, heart disease, and immunologic disorders.

The next blockbuster drug underway

Oncologic drugs contributed 13.8% to Bristol-Myers Squibb (NYSE: BMY) revenue last year. The company has three drugs in this business segment, Yervoy, Sprycel, and Erbitux. Yervoy treats skin cancer and generated revenue of around $721 million last year. This drug has high efficiency in treating Melanoma, and it is widely used to treat inoperable patients.

In addition, Bristol-Myers's new drug under development, Nivolumab, showed positive results with a response rate of 31% when tested with Yervoy in its second trial stage. The company expects that the combination of both drugs will provide a breakthrough in the treatment of melanoma. Therefore, it estimates that the sales of Yervoy will increase and reach $1.06 billion in 2013.

Plavix was a Bristol-Myers blockbuster drug with revenue of $2.54 billion in the last year. Its patent expired last year and generic drugs flooded the market. As a result of the competition from generic drugs, sales of the Plavix fell around 65%, which can result in significantly lower revenue of $130 million this year.

To offset the plunging revenue, Bristol-Myers developed the anti-coagulant drug “Eliquis” jointly with Pfizer (NYSE: PFE). This drug received FDA approval in late 2012 and generated revenue of $2 million last year, and it is expected to reach around $242 million this year.

In the test, Eliquis reduced the stroke risk compared to Warfarin, a competitor of Eliquis. Eliquis showed stroke risk of 1.27% per year, whereas Warfarin had risk of 1.60% per year. With this competitive advantage, analysts anticipate that this drug can achieve peak revenue of around $3.5 billion by the end of 2020.

Pfizer will also benefit from the approval of Eliquis, as this drug achieved average sales of $26 million in the first two months after the launch. The clinical profile of Eliquis is superior to its competitors in this segment, and it also received approval for the treatment of hypertension. Due to its dual benefits, this drug has the potential to generate sales of $121 million in the current fiscal year.

Strong performance is here to stay

Johnson & Johnson (NYSE: JNJ) announced its second quarter results this month, and it achieved 8.5% year-over-year sales growth to $17.9 billion. With the standout performance of Remicade, its sales increased in the pharmaceutical business. Remicade treats arthritis, certain bowel diseases, and skin diseases as well.

The company has been marketing this drug in the U.S., Japan, Taiwan, Indonesia, and China, but due to a new contract with Merck, it will increase the marketing of this product to the Middle East, Africa, and Asia-Pacific region. With the expanding footprint of Remicade, the company expects to generate revenue around $9 billion this year in the immunology segment, up from $7.8 billion last year.

Johnson & Johnson’s revenue in the consumer healthcare segment grew by 1.1%, year-over-year and generated $3.6 billion in the second quarter of 2013. The company is the global market leader in this segment. Under the umbrella of consumer healthcare, it sells OTC drugs like Tylenol, Zyrtec, and Benadryl. These drugs treat patients suffering from the common cold, allergies, and coughs and are readily available without prescription. The global market of OTC drugs is expected to reach to $34.5 billion by 2015, which will lead to an increase in revenue for Johnson & Johnson. With the increase in market size and the company’s flagship products, analysts expect its revenue to rise from $4.34 billion last year to $4.54 billion this year.

Conclusion

Bristol-Myers’ revenue from Yervoy and Eliquis will offset the patent expiration of Plavix. Pfizer will also gain from Eliquis, due to better market positioning and the efficiency of this drug. Meanwhile, Johnson & Johnson's will capitalize on its drug Remicade and the surging market of OTC drugs.

I recommend a buy on these stocks.

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Shweta Dubey has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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