In this article, we take a look at Johnson & Johnson (JNJ), Pfizer (PFE), and Merck (MRK). All three enterprises are rated "Buy." However, share prices could decline in the coming months as economic headwinds impact valuations.
The pharmaceutical industry is concentrated with strong pricing power. It is a mature industry with little growth, industry consolidation, and high barriers to entry. Populations of developed markets are aging, which slightly increases demand.
Historically, the industry has created value for investors. However, market share can shift quickly as drugs are approved and gain acceptance or lose patent protection. Demand (sales) isn't strongly correlated with the economic cycle.
Johnson & Johnson: Buy
Phase III data show Nucynta ER (tapendaol) extended-release tablets provide pain management for patients with diabetic peripheral neuropathy.
Diabetes affects nearly 26 million people in the United States, and its prevalence is expected to grow significantly during the coming decades. Over time, people with diabetes can develop a type of nerve damage called neuropathy. Approximately 60% to 70% of people with diabetes have some form of neuropathy. The most common type is diabetic peripheral neuropathy, which causes pain or loss of feeling in the toes, feet, legs, hands, and arms.
The good news with this drug is that diabetics are relieved of some of their pain; the bad news is they could become nauseous and vomit.
Valuation
Revenue is increasing, and revenue/share is rising as book value/share is also increasing. Price/sales is relatively flat and off of its recent high as price/book value is near a previous low. Share price is near recent highs and could decline in the coming months as economic headwinds cause shares to decline in price.
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Pharmaceutical sales are increasing, although pharma sales have been relatively flat recently.
Price Target: $70
Merck: Buy
The FDA approved new labeling for Isentress (raltegravir) to include 156-week data demonstrating long-term efficacy, safety and tolerability with Isentress in combination therapy in previously untreated adult patients infected with HIV-1.
The bad news is that the drug can cause potentially life-threatening and fatal skin reactions.
Valuation
Revenue/share is rising as book value/share is declining. Price/sales is rising as price/book value is increasing.
Share price and valuations are near recent highs and could decline in the coming months as economic headwinds cause shares to decline in price.
Price Target: $42
Pfizer: Buy
Pfizer announced recently that the Phase III Intorsect (B1771003) study, evaluating Torisel (temsirolimus) in patients with advanced renal cell carcinoma whose disease had progressed on or after Sutent (sunitinib malate) therapy did not meet the primary endpoint of prolonging progression free survival (PFS) when compared to sorafenib. Although PFS was numerically higher in patients treated with temsirolimus, the difference was not statistically significant. Overall survival, a secondary endpoint in the study, showed statistical significance favoring patients randomized to the sorafenib arm. Adverse events in this study were consistent with the known safety profiles for both drugs. Full efficacy and safety data from this study will be presented at an upcoming major medical congress.
Approximately 270,000 people worldwide are diagnosed with renal cell cancer every year, with about 20% in the advanced stages of the disease at the time of diagnosis. Between 40% and 65% of patients in the U.S. who progress following first-line therapy go on to receive a second-line treatment.
Valuation
Revenue/share is rising as book value/share is declining. Price/sales is rising as price/book value is increasing.
Share price and valuations are near recent highs and could decline in the coming months as economic headwinds cause shares to decline in price.
Price Target: $25
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
