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Merck & Co., Allergan lead analysts' top stock picks in biopharma into 2019

Merck & Co. Inc., Allergan PLC and Bayer AG are the top picks of analysts who cover the biopharmaceutical industry going into 2019, according to data compiled by S&P Global Market Intelligence.

Merck had the most favorable consensus analyst rating among the 20 biggest pharmaceutical and biotechnology companies by market value. Most of Merck's success comes from its blockbuster cancer therapy Keytruda, which saw an 80% year-over year hike in sales to $1.9 billion during the third quarter of 2018. Keytruda continues to be one of Merck's main revenue streams as the medicine obtains approvals for new indications.

Keytruda is anticipated to bring in sales of more than $20 billion in 2023, Cowen analysts Steve Scala and Kathleen Miner said in a Dec. 10, 2018, note to investors.

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Allergan lost a patent battle in November 2018 over its dry eye treatment Restasis, paving the way for generic makers Teva Pharmaceutical Industries Ltd., Mylan NV and Akorn Inc. to market their versions of the drug. And while Allergan still holds its ground on Botox, patent losses weighed on the Dublin-based company's third-quarter 2018 earnings, with looming generic competition expected to pull down sales. The U.S. Food and Drug Administration also allowed Mylan to market the first generic version of Allergan's inflammatory bowel disease therapy Canasa Rectal Suppository.

Analysts from both Leerink and Credit Suisse said in December 2018 that they anticipate generic entry for Restasis in January 2019, and have accounted for the impact of Mylan's generic Canasa on Allergan's sales.

Bayer has been battling lawsuits related to weed killers made by Monsanto Co., which the German pharmaceuticals and life sciences group acquired last year for $62.5 billion. Johnson & Johnson, the world's largest healthcare company, was also caught in a string of lawsuits alleging that its talcum powder contained cancer-causing asbestos.

Bristol-Myers Squibb Co. kicked off 2019 with a massive $74 billion cash-and-stock deal to acquire Celgene Corp. The deal had a transaction value of $94.98 billion — larger than any deal in 2018. Celgene's cancer drug Revlimid and its experimental cell therapy platform made the deal compelling, Bristol-Myers Chairman and CEO Giovanni Caforio said earlier this month.

Meanwhile, Eli Lilly and Co. is acquiring Loxo Oncology Inc. for about $8 billion, and GlaxoSmithKline PLC is taking over Tesaro Inc. for $5.1 billion. "With debt financing for the pharma sector still available at extremely low rates, companies not yet involved in this M&A arms race may become tempted, should assets become available," HSBC analyst Steve McGarry said in a Jan. 8 note.

AbbVie Inc. is the least favored among the 20 largest biopharmaceutical companies by market value and the only one with a hold recommendation. AbbVie's rheumatoid arthritis drug Humira, the world's best-selling medicine, is facing further pressure from generic rivals, patent litigation and pricing stagnation.