What To Expect From Big Pharmas After J&J's Solid Q3 Results?

Johnson & Johnson (NYSE:JNJ) was the first large-cap pharma stock to report its earnings results for this season on Oct 17. J&J beat the Zacks Consensus Estimate for both earnings and revenues in the third quarter and also raised its 2017 sales and profit outlook. Shares of J&J were up more than 3% on Tuesday.

J&J’s sales growth accelerated in the third quarter leading the company to post its first positive sales surprise after almost a year. Higher sales in the pharmaceutical segment as well as positive contribution from the Actelion deal pulled up the top line in the quarter. J&J acquired Swiss biotech Actelion in June this year for $30 billion.

Overall, the pharma sector has witnessed a great turnaround this year after the drug pricing issue crippled its performance last year.

After declining 5.2% last year, the Large Cap Pharma industry has risen 18.2% this year so far, outpacing 14.2% gain for the S&P 500 in the same time frame.

New product sales ramp up with rising demand, successful innovation and product line expansion, strong clinical study results, more frequent FDA approvals (11 new drugs approved in Q3 alone) and continued strong performance of legacy products have played a pivotal role in bringing the sector on track this year.

These factors are likely to drive the sector through the rest of this year and probably the next despite challenges like rising competition, pipeline setbacks, slowdown in growth of mature products and generic competition for certain key drugs.

J&J’s better-than-expected results, especially the strong performance of its Pharmaceuticals segment, have raised optimism for another strong quarterly performance by the pharma sector, mainly the large-cap companies.

Let’s have a closer look at what to expect from six big pharma stocks when they report this month/early next month. Five out of the six companies are expected to deliver earnings beat this quarter.

Pfizer, Inc. (NYSE:PFE)

Pfizer is scheduled to announce third-quarter results on Oct 31 before the market opens. With a Zacks Rank #3 (Hold) and Earnings ESP of +1.04%, the chances of the stock beating the Zacks Consensus Estimate in the third quarter is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

New products like Xeljanz (rheumatoid arthritis) and Ibrance (breast cancer) as well as older products like Lyrica (neuropathic pain) and Eliquis (blood thinner) are expected to contribute to Pfizer’s top line meaningfully. However, the loss of exclusivity and associated generic competition for products like Pristiq Vfend, Zyvox and Celebrex and the expiration of a few co-promotion agreements will continue to hamper top-line growth. Blockbuster drug Enbrel sales will continue to be soft in the quarter due to biosimilar competition.

Pfizer surpassed the Zacks Consensus Estimate in two of the trailing four quarters, as shown in the chart below:

Bristol-Myers Squibb Company (NYSE:BMY)

Bristol-Myers is scheduled to release results on Oct 26 before the market opens. Similar to Pfizer, our quantitative model indicates an earnings beat for Bristol-Myers. This Zacks Rank #3 stock has an Earnings ESP of +1.05%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bristol-Myers’ high-profile immuno-oncology drug, Opdivo, is likely to drive the company’s top line in the to-be-reported quarter. Opdivo’s U.S. sales are driven by the melanoma, second-line non-small-cell lung cancer and renal cell carcinoma indications.

Recent label expansions into the classical Hodgkin lymphoma and head and neck cancer indications will also boost the drug’s sales.

Bristol-Myers outpaced the Zacks Consensus Estimate in three of the trailing four quarters, as reflected in the chart below:

Merck & Company, Inc. (NYSE:MRK)

Merck is scheduled to release results on Oct 27 before the market opens. With a Zacks Rank #3 and Earnings ESP of +0.61%, the chances of the stock beating the Zacks Consensus Estimate in the third quarter is high.

Merck’s new products like Keytruda (cancer), Zepatier (HCV) and Bridion (sugammadex) Injection will likely drive revenues this quarter as well. Keytruda sales in the United States are gaining, particularly from strong momentum in the new indication of first-line lung cancer. The Keytruda development program significantly advanced in the first half with regulatory approvals for four new indications in the United States and an additional indication in Europe. The new approvals expand the patient population and are expected to drive sales further.

However, genericization and increasing competition will likely remain overhangs.

Merck outpaced the Zacks Consensus Estimate in each of the trailing four quarters, as reflected in the chart below:

GlaxoSmithKline plc (NYSE:GSK)

Brentford, UK-based GlaxoSmithKline is expected to report results on Oct 25. GlaxoSmithKline is also expected to outperform in the third quarter due to its Zacks Rank #2 (Buy) and Earnings ESP of +1.80%.

Glaxo’s Pharmaceuticals and Vaccines business segments are expected to perform well. Glaxo’s Pharmaceuticals segment is expected to continue being driven by strong sales of new HIV products, Tivicay and Triumeq.

However, many of Glaxo’s key drugs like Lovaza and Avodart are facing declining sales due to generic competition. Moreover, sluggish sales growth in the Consumer Healthcare segment due to a slowdown in market conditions and the impact of divestures may negatively impact the top line in the third quarter.

Notably, the company surpassed the Zacks Consensus Estimate in three of the trailing four quarters, as shown in the chart below:

Eli Lilly and Company (NYSE:LLY)

Eli Lillyis slated to announce third-quarter results on Oct 24 before the market opens. With a Zacks Rank #3 and Earnings ESP of +0.07%, the chances of an earnings beat in the to-be-reported quarter is high.

Continuing the trend of the past few quarters, new products like Trulicity, Cyramza, Taltz and Jardiance are likely to support the top line in the reported quarter.

However, sluggish performance of Alimta, Cymbalta and Zyprexa are expected to continue in the third quarter due to the loss of exclusivity.

Notably, Eli Lilly surpassed the Zacks Consensus Estimate in two of the trailing four quarters, as shown in the chart below:

Novartis AG (NYSE:NVS)

Swiss company, Novartis is scheduled to report its results on Oct 24, before market opens. Novartis is not expected to beat estimates in the third quarter due its Zacks Rank #3 and an Earnings ESP of -0.40%.

The recent approval of Kymriah for acute lymphoblastic leukemia is a major boost for Novartis, given the potential in the CAR T therapy space. Moreover, new products like Cosentyx and Entresto are expected to boost the top line. Cosentyx has been strong and the company has grabbed market share from rivals like AbbVie’s Humira and Amgen’s Enbrel. Cosentyx achieved blockbuster status in 2016.

However, a weak Alcon business and generic competition for several of its key drugs is expected to hurt revenues in this quarter.

Notably, Novartis outpaced the Zacks Consensus Estimate in each of the trailing four quarters, as reflected in the chart below:

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