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Pharma Favorites: Eli Lilly and AstraZeneca

10/15/2018 5:00 am EST

Focus: HEALTHCARE

Todd Shaver

Founder and Editor-in-Chief, BullMarket.com

If tech has you down, consider the strong defense Big Pharma has been playing lately. The sector has performed well this year and will continue to post gains as the Boomer population ages and demand increases for prescription drugs, explains Todd Shaver, editor of BullMarket.

Eli Lilly (LLY) is one of the biggest and most dynamic members of the Big Pharma group, and is up an astounding 36% since the start of the year while supporting a 2.1% dividend. The stock looks resilient for the short term and even stronger for the long term; our new higher $120 Target is in sight.

Eli Lilly leads the pack, chasing records of its own after it received FDA approval for its migraine prevention drug, Emgality. The migraine prevention market has been estimated to top $5 billion by 2020 and there are currently only two key players in the space, so there’s a lot of money at stake here.

To help build market share, the company is taking the radical step of giving out a free 12-month supply of Emgality to all patients with insurance. Beyond that point, the company starts charging. Compared to competing products, dosage is easy via monthly self-administered injection or “stick.” If this drug doesn’t become a blockbuster, we’ll be surprised.

What’s more, the company’s insulin drug Empagliflozin (it’s a good thing the trade name is Jardiance) is doing well in late-stage trials. In addition to decreasing insulin, patients lost weight and saw blood pressure improvements as well. Lilly is already talking to regulators for final approval.

Everything in Pharma depends on the clinical process and AstraZeneca (AZN) had two big wins recently when it comes to pipeline drugs with blockbuster potential.

First, there’s its B-cell lymphoma drug Lumoxiti, which became the first FDA-approved drug to treat a rare type of blood cancer in over 20 years. This untapped market could yield as much as $1 billion in sales, enough to move the needle on what’s currently a $22 billion overall franchise.

AstraZeneca also announced positive results from a Phase 2B study on Tezepelumab, an asthma drug revolutionary enough to earn a breakthrough therapy designation. This is an enormous market. Estimates are that development partners could split a $4.5 billion pot here every year, and with the FDA flashing the green light we should see Phase 3 work start before the year is out.

This all comes on the heels of the solid performance posted by Imfinzi, the company’s late-stage non-small cell lung cancer drug, which recently improved survival rates in a Phase 3 clinical trial.

European regulators have already approved the drug and FDA approval is probably not far behind. Add another $3 billion a year to the potential revenue upside here as lung cancer is one of the hottest medical targets on the planet for good reason.

AstraZeneca is up 12% this year and is now sitting in all-time high territory, as it approaches $100 billion in market cap. These blockbuster drugs have the potential to boost AstraZeneca’s bottom line for years to come and to catapult the company into lucrative new markets.

We’re looking at a 4% yield, so there’s opportunity on two fronts here: price appreciation and dividend income. We’re expecting plenty of both for years to come. Our $42 price target is only the first step.

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