3 Big Pharmas That Give Investors the Biggest Bang for the Buck

Published: Jul 20, 2017

3 Big Pharmas That Give Investors the Biggest Bang for the Buck July 20, 2017
By Mark Terry, BioSpace.com Breaking News Staff

Market research firm EvaluatePharma recently published an analysis of the biopharmaceutical industry. Part of that report looked at big pharma companies’ likely internal return on investment (ROI) from their pipelines. In other words, looking at their current pipelines and predicting how much money those drugs would bring in over the next five years, if they are approved.

That’s a bit different from investors’ return on investment, more of an analysis of how the companies’ stocks will do over the next five years. Keith Speights, writing for The Motley Fool, looks at the three companies that topped the EvaluatePharma report in terms of best projected ROI for investors.

Speights says, “The firm analyzed the top pharma companies’ investments in research and development (R&D) as well as mergers and acquisitions (M&A) compared to its calculations of the net present value of each company’s products. In other words, EvaluatePharma’s effort attempted to determine each pharma company’s internal ROI.”

1. Novo Nordisk

Compared to its brethren in the rest of the top 20 big pharmaceutical companies, Novo Nordisk didn’t make any mergers or acquisitions between 2006 and 2016. And in terms of research-and-development spending, it spent less than everybody except two others in that list. Speights writes, “As a result, the denominator in the ROI calculation was lower than any other big pharma. Even though Novo Nordisk’s products and pipeline aren’t as valuable as some of the others, its low investment total gave it an ROI score of 5.8—by far the highest of all the big pharma companies included in the analysis.”

A dominant player in the diabetes market, the company’s global sales of diabetes products is $12.9 billion. Although the market is competitive and most companies in the market are struggling in the U.S., Novo Nordisk looks to be able to continue to dominate. Sales of its insulin analog NovoRapid are expected to slow, but its Tresiba is expected to offset the drop. It has semaglutide in its pipeline, which if approved could become one of the best-selling diabetes drugs in the world.

Novo Nordisk is currently trading at $43.26.

2. Celgene

Very few, if any, analysts are betting against Celgene these days. In 2016, it dropped $4.47 billion on research and has made several notable acquisitions in the last 10 years, including its acquisition in 2015 of Receptos . It received an ROI score of 2.8 from EvaluatePharma, which made it number two out of the big pharmaceutical companies.

Speights writes, “Potential growth is one area where Celgene ranks above all others. The company is expected to grow sales by a compounded annual growth rate of more than 15 percent—faster than any other big drugmaker. Celgene’s current products, particularly Revlimid, Pomalyst, and Otezla, should contribute significantly to its growth.”

The company has a deep pipeline and 47 partnerships and collaborations that could potentially generate billions of dollars in revenue for the company.

Celgene is currently trading for $135.42.

3. Bayer

Speights points out that Bayer has the “most even balance between R&D and M&A spending between 2006 and 2016.” As a result, its projected ROI score was 2.1

Much of its fortunes, currently and down the road, are tied to two drugs Bayer co-markets. They are Xarelto, a blood thinner, and Eylea, for age-related macular degeneration (AMD), macular edema, and diabetic retinopathy.

It also has a strong pipeline with 17 programs in late trials. One of its most promising candidates is darolutamide for prostate cancer.

Bayer is currently trading for $130.23

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