Pharmaceutical Stocks: Top 10 to Watch in 2023

Key highlights:

• Pharmaceutical companies search for 'blockbuster' drugs that generate at least $1b in annual sales. 
• They often face a long and expensive path through the approval process. 
• Some pharma stocks benefited greatly from the pandemic, for others it was a period of disruption.

The S&P 500 pharmaceuticals returned -11.20% in 2022, above the index’s overall 19.44% loss. The broader market downturn and rising interest rates brought challenges for some biotech companies, especially smaller ones without existing revenues or multiple products.

Top pharmaceutical stocks to watch

Data as of 3 February 2023

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Discover the top pharma stocks to watch

1. Johnson & Johnson (JNJ)

Market Capitalisation: $430.37b

Stock price (as of 03/02/2023): $164.61

Stake Platform Bought / Sold (1 Jan 2022 - 27 Jan 2023): 71% / 29%

Johnson & Johnson (JNJ) is one of the largest healthcare companies in the world, with over $52b in global drug sales in 2021. It operates a diversified range of services across the pharmaceutical and medical devices markets. Its most significant earner is the immunology drug Stelara, which brought in over $9b in 2021. Alongside general macroeconomic headwinds, the focus will shift onto other options as Stelara loses its exclusivity in 2023.

J&J plans to spin off its consumer health segment into a new publicly traded company called Kenvue in 2023, streamlining the main business to focus on pharmaceuticals. They've set an ambitious goal of becoming a $60-billion-a-year drugmaker by 2025, which requires annual revenue growth of at least 5% per year. One concern is that the company is likely to face lawsuits over whether its talc products caused cancer to continue for many years to come.

🆚 Compare JNJ vs ABBV→

🆚 Compare JNJ vs PFE→

2. Pfizer Inc. (PFE)

Market Capitalisation: $247.32b

Stock price (as of 03/02/2023): $44.06

Stake Platform Bought / Sold (1 Jan 2022 - 27 Jan 2023): 52% / 48%

Pfizer is a research-based pharmaceutical company that develops and produces drugs for a number of medical conditions, including cancer, cardiovascular disease, and inflammatory disorders. As the only company that produced both a vaccine and treatment, Pfizer's recent results have been closely tied to the pandemic. Total revenue hit a record $100.33b in 2022, from which COVID treatments accounted for $56.74b.

As the company can no longer expect to rely on U.S. government contracts for these products, the team forecasts sales to fall by around 31% in 2023. They've got vaccines for respiratory infections and pneumonia in the pipeline, which could be future revenue sources if they pass all the regulatory hurdles. Other major income streams for Pfizer were cancer treatment and blood disorder drugs. Some might see 2023 an opportunity to buy the stock at a lower price, whilst others want to wait for more details on the new vaccines.

3. AbbVie Inc. (ABBV)

Market Capitalisation: $256.78b

Stock price (as of 03/02/2023): $145.20

Stake Platform Bought / Sold (1 Jan 2022 - 27 Jan 2023): 66% / 34%

AbbVie was formed in 2013 as a spin-off of the multinational healthcare company Abbott Laboratories. The biopharmaceutical company specialises in developing and commercialising specialised drugs. Their key product is Humira, an injectable therapy used to treat a range of autoimmune diseases such as arthritis, Crohn's disease and colon disorders. Humira lost its monopoly in early 2023 after 20 years and over $200b in revenues.

Gaining market share from the drug may be harder than expected. Abbvie's had a long head start and emphasises its manufacturing capabilities ahead of competitors, known as biosimilars. The pharma company is also banking on drugs Rinvoq for psoriasis and Skyrizi for rheumatoid arthritis to take over as successors for Humira. Results from the next few years will reveal whether these two can carry the firm through a transition period.

4. CRIPSR Therapeutics AG (CRSP)

Market Capitalisation: $4.33b

Stock price (as of 03/02/2023): $55.27

Stake Platform Bought / Sold (1 Jan 2022 - 27 Jan 2023): 64% / 36%

The biotechnology company develops gene editing therapies based on the CRISPR-Cas9 technology. It's focused on creating therapies to treat genetic diseases, such as sickle cell disease, blood disorders, and cystic fibrosis, as well as cancer. As an earlier-stage company, its stock performance has been relatively volatile, moving rapidly with announcements about the progress of its clinical trials, partnerships and collaborations.

The biotech company and its partner Vertex Pharmaceuticals plan to submit its leading product, named exa-cel, to the U.S. Food and Drug Administration (FDA) in Q1 2023. An approval from the FDA could see the company gain its first revenues from the commercial sales of exa-cel as a one-time curative treatment for rare blood disorders. CRISPR's fate and potential future profits are dependent on the FDA's decision, the company will likely continue to make losses without approval.

5. GSK plc (GSK)

Market Capitalisation: $71.71b

Stock price (as of 03/02/2023): $34.83

Stake Platform Bought / Sold (1 Jan 2022 - 27 Jan 2023): 69% / 31%

GlaxoSmithKline's (GSK) main focus areas include pharmaceuticals for respiratory diseases, HIV/infectious diseases, oncology and immunology. The pharmaceutical company spun off its consumer healthcare unit as a separate business called Haleon (HLN) in 2022. Recent positive results have been supported by the blockbuster shingles vaccine Shingrix. GSK's turnover was also helped by better-than-expected sales of its HIV and respiratory treatments in 2022

This previous leader's vaccine sales didn't produce a COVID specific option and their share price has still not recovered to its pre-pandemic peak. GSK’s shares also came under pressure in 2022 as litigation in U.S. courts claimed that a heartburn drug sold by GSK under the brand Zantac, caused cancer. This case was eventually dismissed, but others are still pending. The firm expects 'good momentum' going into 2023, but some are concerned about their debt levels.

6. Moderna Inc. (MRNA)

Market Capitalisation: $66.56b

Stock price (as of 03/02/2023): $173.25

Stake Platform Bought / Sold (1 Jan 2022 - 27 Jan 2023): 53% / 47%

Moderna achieved remarkable success with its COVID-19 vaccine. An investment at the start of 2020 would have returned around 850% by the end of 2022. However, as its the only commercial product for the pharmaceutical stock, there are concerns about the financial future of the company. Sales are expected to decline from $18.4b last year to approximately $5b in 2023. The timing of market authorisation for the COVID-19 boosters also remains uncertain.

The firm has a number of other vaccines in the pipeline that could shift its future focus to another area. It's expected to submit a potential respiratory vaccine to the FDA in the first half of the year, which could earn approval by Q2 2024 if all goes to plan. Data from flu vaccine trials should be published in Q1 2023. A possible personalised cancer vaccine is in earlier stage testing. It's still too soon to tell whether any of these options could keep up its COVID wins.

7. Ginkgo Bioworks Holdings Inc (DNA)

Market Capitalisation: $3.15b

Stock price (as of 03/02/2023): $2.06

Stake Platform Bought / Sold (1 Jan 2022 - 27 Jan 2023): 71% / 29%

Ginkgo Bioworks uses genetic engineering to produce bacteria with industrial applications. It's working in an emerging industry, with the goal of scaling synthetic biology to a factory level operation. Their products have a range of applications, but they've mainly supported the healthcare sector to provide inputs for diagnostics and vaccine design. The biotech has also been working with research and development of living medicines, therapeutic proteins, and gene and cell therapies.

Revenues come through collaboration or licensed R&D services related to their cell programming platform in the Foundry or the biosecurity arm. The latter mainly provided end-to-end COVID-19 testing and faces headwinds in the near future. Ginkgo is focused on its new Enzyme Intelligence service to try to increase cashflows. Their 'biological portfolio' has DNA sequences that can be used for machine learning and AI to construct new or improve existing enzymes.

8. Merck & Co. Inc (MRK)

Market Capitalisation: $260.99b

Stock price (as of 03/02/2023): $102.94

Stake Platform Bought / Sold (1 Jan 2022 - 27 Jan 2023): 48% / 52%

Merck develops, manufactures, and markets a broad range of prescription medicines and over-the-counter drugs, vaccines, and animal health products. Their portfolio covers the areas of oncology, infectious diseases, respiratory, and immunology. The biopharmaceutical company's recent success has been based on Keytruda, which has blocking capabilities that can tell the immune system not to attack cancer cells.

Keytruda accounted for $20.9b of Merck's total worldwide sales of $59.3b in 2022. Future prospects appear bright and sales are expected to grow in 2023, but the firm has no obvious candidates to take over its position. The patent only expires in 2028, but drug development and approval timelines often stretch over multiple years. Another option would be buying a more advanced product. The MRK stock price suffered when a potential acquisition of oncology partner Seagen fell through in 2022.

9. Senseonics Holdings, Inc. (SENS)

Market Capitalisation: $573.91m

Stock price (as of 03/02/2023): $1.20

Stake Platform Bought / Sold (1 Jan 2022 - 27 Jan 2023): 56% / 44%

Senseonics engages in the design and development of an implantable continuous glucose monitoring system for people with diabetes. Its primary product is the brand Eversense, a glucose monitoring device that includes sensors, smart transmitters, and mobile applications. Despite being FDA-approved since 2018 the commercialisation strategy has been very slow to ramp up and Senseonics remains a smaller player in their market segment.

The business should benefit from expanded insurance reimbursement coverage in the U.S. for the latest six month implant device available. They are also moving forward with clinical trials for a 1-year version with more advanced features. Senseonics' ongoing challenge is growing its customer base and translating these sales into profits, especially when compared to its relatively high levels of spending.

10. Bristol-Myers Squibb Co. (BMY)

Market Capitalisation: $158.29b

Stock price (as of 03/02/2023): $74.45

Stake Platform Bought / Sold (1 Jan 2022 - 27 Jan 2023): 51% / 49%

Bristol-Myers Squibb (BMY) researches and develops prescription drugs used for cancer treatment, cardiovascular disease and immunology. Their blockbuster blood cancer drug Revlimid beat sales expectations in the latest quarter but faces increased competition from new generics. Blood thinner Eliquis earned $1.7b in partnership with Pfizer and cancer treatment Opdivo saw sales grow 11% to $2.2b. However, these drugs will also see patents in 2026 and 2028 respectively.

The firm will need to replace the majority of the bestsellers in its current portfolio by the end of the decade. BMY has built up a large clinical testing asset over the years, with a solid pipeline from internal R&D and acquisitions. A few recent launches provide potential to make up lost revenues, including skin cancer drug Opdualag launched in March and cardiovascular drug Camzyos. The future outlook for BMY depends on bringing more drugs through the final hurdles of the pipeline.

How are pharma stocks performing post COVID-19?

The rapid development of the COVID vaccines brought general interest and some funding increases to the pharmaceutical industry. The importance of a robust healthcare sector was clearly showcased and many were impressed by the rapid rate of innovation shown in recent years. However, there are criticisms that the pandemic distracted researchers from other conditions and several companies faced setbacks when trials were disrupted. Some companies are only getting back on track in more recent months, whilst others are under pressure to follow up record sales.

At the height of the pandemic, pharmaceutical companies faced a different policy environment. The speed at which vaccines were approved and produced at a mass scale would be an unlikely occurrence under normal circumstances. The upfront payment by governments for multi-billion dollar contracts also expedited the process. Whilst 'blockbuster' drugs that treat common medical conditions can achieve billions of dollars in sales, the number of potential clients and amount of funding available rarely match the scale of what occurred for COVID.

What are the considerations for investing in pharmaceutical shares?

Pharmaceutical companies can be risky investments, as success is dependent on lengthy R&D processes and regulatory approvals. A firm can face a make-or-break situation that will shape its future during the clinical testing period. This is a particular concern for biotech stocks with small market caps, which could struggle to continue to fund R&D without milestone payments.

Researching the products created by pharmaceutical companies can sometimes be challenging for investors without a medical or scientific background, as marketing materials can contain lots of technical terms or industry-specific language. Pharmaceuticals are also affected by government regulations, which can impact their pricing power and entry into specific markets.

💡Related: Explore the top ASX biotechnology stocks on the ASX→

Pharmaceutical stocks FAQs

Are pharmaceutical stocks a good investment?

Whether a stock is a good investment depends on your risk tolerance and financial situation. A pharmaceutical company's success is reliant on having medications approved for sale. A patented entry into a new area of treatment can be very profitable, especially if there is limited competition. Though the value of these blockbuster drugs can dramatically decrease towards the end of their patents.

Many products don't make it through the whole pipeline and the progress of a small cap stock can be slowed by lumpy cash flows. Those with a larger market cap are less exposed to single drugs, as they usually have multiple pharmaceutical products and income streams. They often also acquire successful small cap stocks with successful treatments.

What pharmaceutical ETFs are available to invest in?

There are several pharma ETF options to gain exposure to pharmaceutical companies. The VanEck Pharmaceutical ETF (PPH) includes 25 companies that generate at least 50% of their revenue from pharmaceutical-related products and services. Large pharmaceutical stocks listed in the U.S. are also accessible in the iShares U.S. Pharmaceuticals ETF (IHE). The Invesco Dynamic Pharmaceuticals ETF (PJP) consists of 30 U.S. listed companies from the pharmaceutical industry.

The Direxion Daily S&P Biotech Bull 3X Shares ETF (LABU) is a leveraged product that aims to return 300% of the biotech companies on the S&P. The Direxion Daily S&P Biotech Bear 3X Shares (LABD) does the inverse. These ETFs have proved particularly popular amongst Stake traders.

This does not constitute financial product advice nor a recommendation to invest in the securities listed. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking appropriate financial or taxation advice before investing.