By
Adam LewisUpdated
In the Covid pandemic, pharmaceutical (pharma) companies have made headlines in their efforts to get the world back up and running with effective vaccines to the virus. The speed and success at which AstraZeneca and Pfizer both got vaccines to market shows that despite having a reputation for being high risk, pharma companies can be compelling for long-term investors.
This is because the possibility of patented entry into new areas of treatment means pharma companies can present profitable opportunities for those who do their research.
We have some great pharmaceutical companies here in the UK. If you’re not familiar with the companies, you’ll probably be familiar with some of the brands that they own, which we’ll detail more below.
If you’ve had one of your coronavirus vaccines, whether it’s a first dose, a second dose or a booster shot, you may have had the AstraZeneca coronavirus vaccine. For a lot of people, this was the first time they’d heard of this company, but it’s a longstanding company with a history dating back more than a century. AstraZeneca has products used to help diseases in oncology, the cardiovascular system, the gastrointestinal system, neuroscience and the respiratory system.
The stock is listed on the London Stock Exchange, NASDAQ OMX Stockholm, NASDAQ New York, the Bombay Stock Exchange and the National Stock Exchange of India. AstraZeneca is part of the FTSE 100 index.
A FTSE 100 giant, GlaxoSmithKline (Glaxo) is a world leader in oncology (cancer treatments), HIV and respiratory drugs. With a market cap of $86.4bn, it is also involved in the manufacturing and marketing of vaccines, medicines and other healthcare-related products. This wide range of operations means Glaxo is perceived as relatively ‘safe’ pharma company. It is also a favourite among dividend investors, with a yield over 6%.
Glaxo is listed on the London Stock Exchange and the New York Stock Exchange, and is a component of the FTSE 100.
There are pharmaceutical companies all over the world, so you don’t have to stick with stocks closer to home if you don’t want to. Investing in some global stocks means that you can diversify your portfolio, but you can also encounter fluctuations and foreign exchange fees.
Pfizer is one of the world’s largest pharmaceutical companies, headquartered in New York City. Developing and distributing medicines and vaccines worldwide, for inflammatory and immunology diseases, as well as rare diseases, the Pfizer-BioNTech vaccine was the first to be approved for distribution in the UK in December 2020.
Pfizer is listed on the New York Stock Exchange and is a component of S&P 100, S&P 500 and Russell 1000 indices.
Paris-based Sanofi is a parma company that focuses on therapeutics, most notably for multiple sclerosis, various cancers and arthritis. It is also the world’s fifth largest pharmaceutical company in terms of prescription sales from selling a wide range of over-the-counter drugs to consumers.
Sanofi is listed on the European New Exchange Technology (Euronext) and the New York Stock Exchange. It is also part of the CAC 40, which is the benchmark for the French stock market.
Headquartered in Switzerland, Novartis is one of the world’s largest pharmaceutical companies based on market capitalisation ($196.5bn), along with Pfizer. Its main purpose is to generate prescription medicines on a global basis for immunology, dermatology and respiratory purposes.
Novartis is listed on the SIX Swiss Exchange and New York Stock Exchange.
Sitting in the healthcare sector, pharma stocks have been long known for their defensive qualities. Namely they produce products which are in constant demand as the need for healthcare and pharmaceuticals does not subside. Put simply, people will always be sick and in need of care.
However, the important thing to consider is size. Nicholas Hyett, an equity analyst at Hargreaves Lansdown, notes it is expensive being a drug maker. This is because enormous research and development costs go into each new therapy, and many never make it to pharmacy shelves.
“Having drugs already on the market generating the cash needed to support the expensive development process is a big bonus,” he says. “For that reason, the industry’s largest, best funded, players tend to be safer than some of the upstart biotech stocks that frequently make headlines.
At the same time, the large drug makers are generally well-known for dividend payments. As a result, so they are often of interest to dividend investors, or to anyone looking to find long-term gains with lower risk than other stocks.
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Read the full methodologyWhile the size of a drug maker helps smooth the ups and downs that go with the drug approval process, Hyett says patent protection is what keeps their current arsenal of treatments profitable while they work on new therapies. With this in mind, he says patent expiry is another key way to evaluate revenue.
“If a large percentage of a company’s sales are at risk over the next few years, it’s important that their pipeline is relatively advanced with several drugs on the way to being approved,” he says.
Meanwhile just because a company’s paying dividends today doesn’t mean it will be tomorrow. Glaxo, for example, recently trimmed its dividend and is now expected to offer a prospective dividend yield of 3.9%.
As such, it is recommended investors look at dividend cover to get an idea as to how secure a dividend payment is – but remember dividend yields are variable and no dividend is guaranteed.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
During the covid pandemic, pharma was a popular industry to invest in. However investing in pharma, is more than just about finding vaccines. The sector houses companies fighting all manner of diseases, with some drugs in the early stages of development, and others much more established.
Demystifying drug portfolios and understanding how drug companies run their businesses however does take time and effort. But all this information can be found in their annual reports.
No. Pharmaceutical and biotechnology companies both produce medicines, but the medicines made by biotechnology companies are derived from living organisms while those made by pharmaceutical companies generally have a chemical basis.
Yes. As the need for healthcare and pharmaceuticals does not subside never subsides, pharma stocks are known as being non-cynical and generally perform well in market downturns.
Yes, but not all of them. Generally, the larger stocks do pay dividends making them attractive for those investors looking for income. However smaller companies at early stages in their growth cycle are less likely to do so.
Adam Lewis is a freelance journalist and content editor at Last Word Media, with over 20 years of experience in financial journalism. A five-time award winner, he’s written for a range of specialist trade publications including Portfolio Adviser, Investment Week and Trustnet. See full bio
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