- BioMarin, Bristol-Myers Squibb and Eli Lilly are the most undervalued drugmakers based on revenue estimates for the next five years, according to a November report from Morningstar.
- In its latest edition of Healthcare Observer, the investment firm projected revenue growth through 2020 for large-cap pharmaceutical companies using three criteria: sales from new drugs, sales from old drugs not facing generic competition, and sales lost to that competition.
- Of the companies analyzed, BioMarin was head and shoulders above its peers, largely due to a formidable pipeline for rare disease treatments, safety from patent loss and recent drug launches that should catapult sales. Morningstar expects the biopharma's revenue to grow 229% over the next five years.
Major themes seen across the industry this year were pharmaceutical companies working to carve out niches for themselves and create more focused portfolios. They could be seen in Sanofi looking for new therapeutic areas outside diabetes and Boehringer Ingelheim staking its claim as a leader in animal health, while Novartis and GlaxoSmithKline consolidated their respective R&D activities.
Those trends also weighed both positively and negatively for companies in Morningstar's ranking.
Regeneron and BioMarin, for example, have "more concentrated portfolios and smaller revenue bases," the report said. Coupled with the promise of their respective rare disease and antibody pipelines, those factors helped to hike revenue growth expectations through 2020 by triple-digit percentages for both companies.
On the flip side, companies with narrow portfolios or that receive the bulk of their revenue from one product – such as AbbVie's anti-inflammatory blockbuster Humira – can also be more susceptible to patent loss, generic competition and other things harmful to bottom lines.
"While the strength of a portfolio can be partly measured by revenue, the breadth of a firm’s portfolio can be an indicator of the firm’s R&D productivity or business development success, and generally provides a buffer against increased competitive threats to a single product in the firm’s portfolio," the report said.
Additionally, Morningstar acknowledged that an increasingly difficult pricing environment could dampen revenues for the industry in coming years. While legislation has popped up in Congressional bill proposals and state ballot initiatives that may curb drug pricing in the future, consolidation among pharmacy benefit managers is already putting a squeeze on drugmaker's negotiating power.
"As a result, most of the top 20 drug firms we cover are focused on specialty markets and areas of unmet medical need in an effort to offset this pressure, and the diversity of market niches within oncology and rare genetic diseases has made them particularly attractive across the industry."