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Merck & Co., Vertex lead analysts' top drug stock picks entering 2021

Merck & Co. Inc., Vertex Pharmaceuticals Inc. and Roche Holding AG are the top picks of analysts who cover the pharmaceutical and biotechnology industry heading into 2021, according to data compiled by S&P Global Market Intelligence.

Merck continues to be the analysts' favorite among the sector's 20 biggest U.S. and European companies by market value.

The Kenilworth, N.J.-based pharmaceutical giant's blockbuster cancer therapy Keytruda saw a sales hike of 46%, 29% and 21% during the first, second and third quarters of 2020, respectively, on an annual basis. SVB Leerink analyst Daina Graybosch said in a Feb. 4 note that Keytruda was likely to see more risk than upside in the year due to pressures surrounding the U.S. elections. The drug, however, secured its first U.S. approval in breast cancer, gaining a foothold in the disease market led by Swiss rival Roche.

As for 2021, the company is set to complete the spinoff of its women's health, legacy brands and biosimilar products into a new company. It also has an antiviral treatment and two vaccine candidates in clinical trials to address the COVID-19 pandemic.

Riding mostly on the sale of its three-pronged cystic fibrosis treatment Trikafta, Vertex saw a 62% year-over-year jump in revenue for the third quarter of 2020, with Credit Suisse analyst Evan Seigerman and SVB Leerink analyst Geoffrey Porges giving the biotech an outperform rating on Oct. 30.

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Meanwhile, Roche saw some upside in 2020 with the U.S. emergency use authorization of its COVID-19 diagnostic tools: the Elecsys Anti-SARS-CoV-2 S test and cobas SARS-CoV-2 & Influenza A/B test. Back in October, the company posted third-quarter sales with a year-over-year dip of 5.8% at CHF14.70 billion, against Jefferies' estimate of CHF14.98 billion and consensus of CHF15.28 billion. Still, in a Dec. 8 report, Cowen raised the company's long-term revenue forecast for 2025 by CHF2 billion, citing higher sales for Hemlibra, Tecentriq and Perjeta while lowering expectations for Avastin, Herceptin and Rituxan.

Biogen Inc. and Novo Nordisk A/S were among the least favored stocks, according to S&P Global Market Intelligence data.

After a year over year revenue decline of 6% during the third quarter of 2020, Biogen, the maker of multiple sclerosis drug Tecfidera, is ending the year with a $1.53 billion deal to license two potential neurological drugs from fellow Cambridge, Mass.-based biotech Sage Therapeutics Inc. One of the key components of the agreement is zuranolone, which failed a phase 3 trial in major depressive disorder but can have multiple "shots on goal" in 2021 as the company is testing the drug in postpartum depression along with other forms of depression, Cantor Fitzgerald analyst Alethia Young noted in a Nov. 27 report.

Denmark's Novo Nordisk was among key European companies like Bayer AG and AstraZeneca PLC that missed analyst predictions with product sales dipping due to the COVID-19 pandemic. In its Oct. 30 earnings call, CEO Lars Fruergaard Jørgensen said the insulin-maker has already cornered 29.2% of the global diabetes medicines market and aims to reach a full third of coverage in 2025.

The pharmaceutical giant is heading into 2021 after closing a $1.35 billion acquisition of drug delivery company Emisphere Technologies Inc.

In a Dec. 14 equity research report, RBC Capital Markets named biotechnology companies Gilead Sciences Inc. and Genmab A/S as favorites for 2021 Gilead for its HIV drug Biktarvy and Genmab for its proprietary antibody-based R&D platform. The report also highlighted the main themes that can dominate the sector, including investor sentiment, drug pricing and policy, mergers and acquisitions, regulatory landscape and the COVID-19 pandemic.

In a similar report, Cowen Research cited edge computing, ESG and energy transition, robotics, automation and cannabis as some of the themes set to emerge in 2021.