The biotechnology sector is estimated to grow from approximately $500 billion in 2020 to more than $950 billion in 2027, at a compound annual growth rate (CAGR) of 9.4%. This growth will be driven by a variety of factors, including the rise in the prevalence of chronic diseases caused by the ubiquity of chemicals in everyday life. Demand for enhanced agricultural output has led scientists to experiment with drugs and gene technologies that increase crop output by making use of modern biotechnology techniques. New and emerging diseases – such as Ebola in 2013, the Covid outbreak in 2019, and HIV/AIDS in the 1960s – call for cutting edge biotechnology that can effectively curtail their spread and alleviate human suffering. Governments around the world also realize the importance of remaining one step ahead in the search for new drug discoveries and have amped up spending on the biotech sector in recent times. They are also working towards making the drug discovery process smoother for ambitious firms, by standardizing clinical studies and accelerating the procedures for product approval.
Market Situation
The pandemic turned the world’s attention to the biotech industry, which usually never features amongst Wall Street’s more glamorous stocks. Healthcare-dedicated funds received almost $5 billion a month at the start of 2020, according to Bloomberg Intelligence, as investors turned to the one sector of the economy playing a crucial role as the ‘savior’ of all others.
In 2020, a record 95 biotech companies made their debuts on stock exchanges through initial public offerings, and the record stood broken the next year with 121 new firms starting to trade publicly. To paint an even larger picture of the rise in biotech companies working on novel drug treatments or products, consider how there were around 125 publicly listed biotech companies in the US in 2012, as compared to more than 700 firms today.
But the enthusiasm generated due to the pandemic and the need to find a vaccine has eventually subsided. The most followed benchmark for the biotech sector, The Nasdaq Biotechnology Index, has slumped 23% since hitting a yearly peak in August 2021. The SPDR S&P Biotech exchange-traded fund has also lost 35% since its highs in late April 2021. This is what analysts call a correction in the biotech sector, which was pumped up with cash as newbie companies with no approved drugs or commercial products also enjoyed undue attention.
Companies that finally produced the vaccines reaped their rewards. Pfizer Inc. (NYSE:PFE) garnered more than $36 billion in vaccine sales in 2021, manufacturing 3 billion doses in collaboration with BioNTech SE (NASDAQ:BNTX). Moderna, Inc. (NASDAQ:MRNA) hit the jackpot with its first commercial product, the Spikevax Covid vaccine, bringing in $18.5 billion in 2021 revenue. But other firms with much yet to prove have seen investor enthusiasm wane as the world’s sensitivities towards biohazards slowly return to normal levels.
In this situation, it would be wise to consider the established names in the biotech sector that have stable business models and drug pipelines with many exciting products on the way. Since biotech firms with even the most innovative products have a long and hard journey towards commercial success, we picked the 10 most profitable biotech companies in the world.
Photo by National Cancer Institute on Unsplash
Our Methodology
We sifted through the biotech industry and picked companies with the highest profitability (net income). We also talked about what the company’s products are, its history, and unique place in the market. Analyst ratings have also been provided where available.
10 Most Profitable Biotech Companies in the World
10. CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 71
Net Income (TTM): $7.91 billion
CVS Health Corporation (NYSE:CVS) starts off our list of most profitable biotech companies in the world. The firm operates a chain of pharmacies and clinics in the United States, including CVS Pharmacy, CVS Caremark, MinuteClinic, and Omnicare. The firm has approximately 10,000 pharmacies in 50 states across America, and according to a 2020 company review, 85% of the US population lives within 10 miles of a CVS pharmacy.
CVS Health Corporation fills more than 20% of all prescriptions in the United States, and its ExtraCare loyalty program is the largest retail loyalty program in the country with over 70 million cardholders. MinuteClinic is a chain of clinics operating inside CVS pharmacies, and is the largest walk-in medical clinic in the US with around 1,100 locations in 34 states.
In December 2021, CVS Health Corporation signed a partnership with Microsoft to work with cloud computing and artificial intelligence technologies to produce a more data-driven, personalized customer experience in the healthcare segment. Microsoft will help CVS Health towards its digital transformation by leveraging its AI and Azure cloud services.
CVS Health Corporation posted an annual revenue of $292.11 billion for 2021, signaling an increase of 8.71% from 2020. In February, the firm announced the launch of six new innovative home health care products as an extension of the company’s exclusive CVS Health product line. CVS Health Corporation stated in its fourth quarter earnings conference call that it was entering 2022 with a ‘positive momentum’, and sees a clear pathway to low double digit EPS growth.
Madison Funds, an investment firm, talked about CVS Health Corporation in its Q4 2021 investor letter, stating:
“This quarter we are highlighting CVS Health (CVS) as a relative yield example in the Health Care sector. CVS is a vertically integrated health care focused company with leading pharmacy, pharmacy benefits manager (PBM) and managed care businesses. It has more than 10,000 retail pharmacies, along with strong franchises that were acquired in recent years including Caremark, which is the largest PBM in the US that processes over 2 billion adjusted claims annually, and Aetna with 24 million health insurance members. We believe its retail pharmacy network, along with its size and scope in the PBM and managed care businesses provide sustainable competitive advantages.
Our thesis on CVS is that its vertically integrated business model will successfully reduce health care costs for its clients while also accelerating long-term earnings growth. CVS management believes that when retail customers use both CVS pharmacy benefits and medical insurance, their medical costs decline 3-6% over a three-year period by reducing hospitalizations and emergency room visits. This cost savings should help retain and grow clients while lowering health care costs.
CVS stock significantly lagged the stock market since 2015 as the company changed its strategy from a pure retail outfit and made the transformative Caremark and Aetna acquisitions. After several years, we believe integration of those companies is finally starting to pay off and its stock performance is improving. The company raised earnings guidance earlier this year, while also committing to return significant amounts of capital to shareholders through dividend increases and stock buybacks. At its recent investor day, CVS announced a +10% increase in its dividend and a $10 billion stock repurchase authorization, which represents 7% of diluted shares outstanding. Management also targeted sustainable long-term earnings growth of greater than +10% beginning in 2024…” (Click here to see the full text)
9. Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN)
Number of Hedge Fund Holders: 41
Net Income (TTM): $8.07 billion
Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) is a New York-based biotech firm which develops medicines for a range of disorders such as infectious diseases, eye diseases, cardiovascular, allergic and inflammatory issues, and cancer. These therapies include EYLEA injection for macular degeneration and diabetic macular edema; the Dupixent injection for atopic dermatitis and asthma; REGEN-COV2 antibody solution for Covid-19; and the Kevzara solution for treating rheumatoid arthritis in adults.
On February 8, Truist analyst Robyn Karnauskas maintained a ‘Buy’ rating on Regeneron Pharmaceuticals, Inc. shares, noting that key to upside for the firm is its evolving oncology platform, with key data catalysts expected this year. Regeneron Pharmaceuticals, Inc. received a $450 million funding from the US government to develop and supply its experimental treatment drug for Covid-19 called REGN-COV2. This artificial ‘antibody cocktail’ was administered to former US President Donald Trump in October 2020 after a special compassionate use request was given to Regeneron Pharmaceuticals, Inc. for provision of the drug before its FDA approval, which the product received in November 2020.
Regeneron Pharmaceuticals, Inc. is also the parent company behind the Regeneron Genetics Centre, which is the organization behind the world’s largest genome research effort. The firm utilizes gene sequencing to speed drug discovery and development.
Oakmark Funds, an investment firm, talked about Regeneron Pharmaceuticals, Inc. in its Q2 2021 investor letter. The fund said:
“We restored Regeneron Pharmaceuticals from a rather trivial to a more normal position size. You may recall Regeneron performed well for the Fund during the Covid-19 crisis, so we significantly reduced our position as its price-value gap narrowed. During the past several quarters, however, the market has experienced the now infamous “reopening trade,” in which companies that performed well during the pandemic trailed as the economy reopened. Regeneron suffered a similar fate and its shares have lagged the S&P 500 by roughly 4000 basis points, despite the company’s strong fundamentals and robust pipeline of new products. The underperformance widened Regeneron’s price-value gap, so we restored it to a more normal position size.”
8. AbbVie Inc. (NYSE:ABBV)
Number of Hedge Fund Holders: 82
Net Income (TTM): $11.54 billion
AbbVie Inc. (NYSE:ABBV) ranks next on our list of the most profitable biotech stocks. The firm came into being after Abbot Laboratories split into two businesses in 2013, with AbbVie Inc. operating as a research-based medicine manufacturer, and the parent company, Abbot Laboratories, specializing in diversified offerings such as medical devices, diagnostic equipment and nutrition products. AbbVie Inc. offers its products to patients in more than 170 countries around the globe. It develops a range of therapies in the field of oncology, neuroscience, immunology, and virology. Its HUMIRA product is used to treat autoimmune and intestinal Behçet’s diseases, and its SKYRIZI product is for adults with plaque psoriasis.
FDA approved AbbVie Inc.’s (NYSE:ABBV) Rinvoq drug on March 16, which is used to treat ulcerative colitis in adults. The drug was approved after positive efficacy and safety data from three Phase 3 clinical studies. Citi analyst Andrew Baum in March maintained a Buy rating on AbbVie Inc. shares, and upped the price target to $170 from $155, noting optimism over the firm’s Rinvoq drug.
AbbVie Inc. posted $56.19 billion in revenue for 2021, which is a jump of 22.69% from its revenue of $45.80 billion in 2020. Out of all the hedge funds tracked by Insider Monkey, Berkshire Hathaway of Warren Buffett was the top shareholder of AbbVie Inc. in the fourth quarter, with more than 3 million shares worth $410.74 million.
Miller Howard Investments mentioned AbbVie Inc. in its Q3 2021 investor letter, stating:
“While optimistic about a recovery, we continue to balance our cyclical holdings with dividend-payers in stable, less economically-sensitive industries. We hold three pharmaceutical companies, (which includes) AbbVie (ABBV). All three have strong cash flows and balance sheets, making their high dividends reasonably safe. The investment controversy surrounding these pharma companies is whether they can develop or acquire new products to replace their current blockbuster drugs. The low valuations on these stocks reflects what we believe to be undue pessimism by investors on the prospects for new drugs.”
7. Moderna, Inc. (NASDAQ:MRNA)
Number of Hedge Fund Holders: 43
Net Income (TTM): $12.2 billion
Moderna, Inc. is the biotech firm behind the popular SpikeVax Covid vaccine used around the world. Based in Cambridge, Massachusetts, the firm uses messenger RNA-based vaccines and therapies to treat infectious diseases, immuno-oncology, cardiovascular and auto-immune diseases. On 29 March, Moderna, Inc. received U.S. Food and Drug Administration (FDA) approval for the second booster dose of its COVID-19 vaccine, mRNA-1273, for adults aged 50 and above. The firm is also seeking FDA approval for its two-dose Covid vaccine for children, which could be a big boost to the firm’s business given millions of unvaccinated children in the United States.
Piper Sandler analyst Edward Tenthoff holds that Moderna, Inc.’s (NASDAQ:MRNA) SpikeVax vaccine has validated mRNA technology for infectious disease vaccines, and proven a “financial windfall” for the firm. Moderna has a substantially expanded drug pipeline with 31 vaccines candidates in development which includes 19 in clinical trials. Tenthoff on March 25 reiterated an ‘Overweight’ rating on Moderna, Inc. with a $348 price target.
Moderna, Inc. reported $18.5 billion in revenue for 2021, generated mostly from the sale of 807 million doses of its Covid vaccine.This was an increase of over 2,200% from the firm’s revenue generated in 2020. Moderna has also recorded nearly $19 billion in advance purchase agreements for 2022.
Baillie Gifford, an investment firm, mentioned a few stocks in its Q2 2021 investor letter, and Moderna, Inc. was one of them. Here’s what the fund said:
“Among the top contributors to Fund performance in the second quarter was Moderna. Moderna, Inc. has just reported its first profitable quarter in the company’s history – net income for the most recent quarter was $1.2 billion. It reported revenue of $1.9 billion, an impressive increase compared to $8 million a year ago, driven by the sales of its Covid-19 vaccine. Moderna, Inc. is expecting to deliver up to 1 billion vaccine doses in 2021 and is in discussions to increase global supply to governments around the world. Our long-term focus remains on the transformational potential of Moderna’s technology and its ability to address different diseases.”
6. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 80
Net Income (TTM): $13.04 billion
Merck & Co., Inc. develops drug therapies to treat diseases related to oncology, immunology, neuroscience, cardiovascular diseases, and diabetes, as well as veterinary drugs. In 2020, the firm boasted 6 blockbuster drugs with over $1 billion in revenue, including anti-diabetic medication, treatments for cancer immunotherapy, and vaccines against HPV and chickenpox.
With a market cap of over $206 billion, Merck & Co., Inc. is one of the largest biotech firms in the world. The firm owes its origins to the Merck Group founded by the Merck family in Germany in 1668. Merck & Co., Inc. was founded as a US subsidiary of Merck Group in 1891, but was then nationalized by the American government in 1917, before eventually going private and having its stock purchased by George Merck, a member of the Merck family. The firm is known as Merck Sharp & Dohme (MSD) outside of the United States.
On February 4, Merck & Co., Inc. was upgraded to ‘Outperform’ from ‘Market Perform’ by Cowen analyst Boris Peaker, who sees multiple catalysts for the firm in 2022. On March 21, the US Food and Drug Administration (FDA) approved pembrolizumab, or Keytruda, by Merck & Co., Inc. for patients with advanced endometrial cancer.
Here is what Miller Howard Investments had to say about Merck & Co., Inc. in its Q3 2021 investor letter:
“While optimistic about a recovery, we continue to balance our cyclical holdings with dividend-payers in stable, less economically-sensitive industries. We hold three pharmaceutical companies, (which includes) Merck (MRK). All three have strong cash flows and balance sheets, making their high dividends reasonably safe. The investment controversy surrounding these pharma companies is whether they can develop or acquire new products to replace their current blockbuster drugs. The low valuations on these stocks reflects what we believe to be undue pessimism by investors on the prospects for new drugs.”
5. Roche Holding AG (OTC:RHHBY)
Number of Hedge Fund Holders: 3
Net Income (TTM): $15.09 billion
Roche Holding AG (OTC: RHHBY) is one of the largest and most profitable biotech firms in the world. The Switzerland-based company provides treatments for cancer, hepatitis, HIV/AIDS, and anemia, as well as for diseases in the areas of ophthalmology, dermatology, and immunology among others. The firm also provides the research market with diagnostic instruments and test kits and is also one of the leading manufacturers of COVID-19 tests. Founded in 1896, Roche Holding AG has a long history of delivering groundbreaking biotech products.
Roche Holding AG was the first company to mass-produce synthetic vitamin C, under the brand name Redoxon in 1934. Roche is also the leading provider of cancer treatments around the world. It developed the tranquilizer drug class called benzodiazepines, with antidepressants Valium and Rohypnol the most famous names under this drug family. Roche Holding AG is also the sole authorized manufacturer of a bird flu drug called Oseltamivir, which was discovered by Gilead Sciences.
Revenue for 2021 for the biotech giant stood at $72.04 billion, signaling an increase of 11.94% year on year. Fisher Asset Management of billionaire Ken Fisher was the top shareholder of Roche Holding AG in the fourth quarter, with 4.65 million shares valued at $242.3 million.
Harding Loevner, an investment firm, talked about Roche Holding AG in its Q4 2021 investor letter. The fund said:
“Health Care boosted relative performance as our holdings benefitted from the pandemic both coming and going. Roche and Lonza saw heightened interest in treatment, testing, and vaccination activities to battle the waves of newer COVID-19 variants.
4. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 83
Net Income (TTM): $20.87 billion
Johnson & Johnson is a pharmaceutical giant that features next on our list of the most profitable biotech companies. The New Jersey-based company offers products through three segments: Consumer Products, Medical Devices, and Pharmaceutical. The pharmaceutical products include treatments for neuroscience, oncology, pulmonary hypertension, and cardiovascular and metabolic diseases, as well as immunology and infectious diseases.
In March, The New York Times reported that although once dismissed as less effective than Pfizer’s and Moderna’s Covid vaccine, Johnson & Johnson’s (NYSE:JNJ) Covid vaccine seems to be preventing infections and illness just as good as its competitors, with recent data suggesting that “punches above its weight for a single-dose vaccine.” In 2021, the firm was awarded a contract by the US government to provide 100 million doses of its single-shot Covid vaccine.
In 2020, Johnson & Johnson acquired Momenta Pharmaceuticals, which deals in the discovery and development of novel therapies for immune-mediated diseases. This $6.5 billion deal will expand Johnson & Johnson’s (NYSE: JNJ) biotech portfolio in the field of autoimmune disorder treatments.
Johnson & Johnson reported a revenue of $93.77 billion for 2021, increasing 13.55% from its revenue of $82.58 billion for 2020. Fundsmith LLP held 7.21 million shares worth $1.23 billion in Johnson & Johnson over the fourth quarter, making it the largest shareholder of the firm.
Distillate Capital, an investment firm, talked about Johnson & Johnson in its Q2 2021 investor letter. The fund said:
“The largest additions in the rebalance, Johnson & Johnson was around 50 and 40 basis points incrementally. J&J underperformed in the quarter while its normalized free cash flows held steady and so its position size was topped off to match the stable cash flows.”
3. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 83
Net Income (TTM): $21.97 billion
Pfizer Inc. is up next on our list of the most profitable biotech firms. It was founded in 1849 by Charles Pfizer, and currently produces several medicinal products with annual revenues of more than $1 billion. The firm has shot to mainstream prominence after producing its Covid-19 vaccine in partnership with BioNTech. As of March 2022, 331 million doses of its vaccines have been administered in the United States. It pledged to manufacture 3 billion doses in total for the year of 2021, and generated $36 billion in vaccine sales for the year. Along with competitor Moderna, Pfizer Inc. in late March received US Food & Drug Administration Authority (FDA) approval for the second booster dose of its Covid vaccine.
As part of its strategy to solidify its leadership in drug development and discovery, Pfizer is investing $500 million towards clinical research and drug development programs through the Pfizer Breakthrough Growth Initiative. United Nations-backed Medicines Patent Pool (MPP) in March announced that 35 generic drug manufacturers around the world have agreed to produce cheap versions of Pfizer Inc.’s Paxlovid oral pill, which will be distributed to 95 low-income countries across the globe. The firm’s revenue for 2021 was recorded at $81.49 billion, a jump of 94.45% in comparison to 2020.
Saturna Capital, an investment firm, talked about Pfizer Inc. in its Q3 2021 investor letter. The fund said:
“The Fund’s strongest performer during the quarter was pharmaceutical manufacturer Pfizer Inc.. The company submitted trial data to the FDA for use of its COVID-19 vaccine for younger children, and it is widely expected that the FDA will approve it. Health authorities also began recommending booster shots of the Pfizer vaccine for select populations, further increasing demand for vaccinations.”
2. Novartis AG (NYSE:NVS)
Number of Hedge Fund Holders: 25
Net Income (TTM): $24.02 billion
Novartis AG (NYSE:NVS) is one of the largest biopharmaceutical firms in the world. It is based in Switzerland, and offers a range of therapies for diseases in the therapeutic areas of ophthalmology, neuroscience, immunology, hepatology, dermatology, respiratory and cardiovascular. In December 2021, Novartis AG announced that over the next five years, it was expecting sales growth of at least 4% owing to growing demand for new drugs. In these five years, Novartis expects the approval of 20 new drug products with sales potential of more than $1 billion. In 2020, medical products by Novartis AG reached 800 million people around the globe.
On March 23, Novartis announced that the US Food and Drug Administration (FDA) approved its cancer drug called Pluvicto, which treats adults with a certain type of advanced prostrate cancer. In 2019, Novartis AG announced a strategic partnership with Microsoft, in a bid to leverage the firm’s AI capabilities to accelerate drug discovery for patients around the world. Microsoft is helping Novartis’ scientists with cutting-edge technology platforms that use algorithms to find trends and patterns within huge sets of data, and thereby fasten the drug discovery process.
Novartis AG posted an annual revenue of $52.87 billion for 2021, showing a 5.97% increase from the previous year. Out of all the hedge funds tracked by Insider Monkey, Fisher Asset Management was the leading shareholder in Novartis AG, with a stake consisting of 10.38 million shares valued at $908.34 million.
Investment firm Oakmark Funds mentioned Novartis AG in its Q4 2020 investor letter. The fund said:
“Novartis is one of Europe’s largest pharmaceutical companies and possesses a highly diversified portfolio of innovative products. Its share price underperformed both the broader market and its pharma peers during 2020, largely due to a few disappointing late-stage trials and the company’s lack of Covid-19-related therapeutics or vaccines. These short-term issues provided us with an attractive entry point to invest in a leading pharmaceutical franchise with compelling economics. We estimate that the market is currently ascribing almost no value to Novartis’ pipeline despite the company’s excellent track record in new drug development. We expect that Novartis will deliver mid-single-digit, top-line growth and expand margins over the next five years as a result of its cost-savings plan. The company possesses one of the most diversified product portfolios in the pharma industry with 15 $1b+ compounds, which reduces its reliance on any single compound.”
1. Novo Nordisk A/S (NYSE:NVO)
Number of Hedge Fund Holders: 28
Net Income (TTM): $47.75 billion
Novo Nordisk A/S (NYSE:NVO) is a Danish company that specializes in treatments for diabetes. As the disease becomes more prevalent around the globe owing to sedentary lifestyles, Novo Nordisk A/S is poised to take advantage as an industry leader in insulin treatments. The firm also provides treatments for haemophilia, growth disorders, and hormone replacement therapy. It boasts production facilities in 8 countries and employs more than 45,000 people around the globe.
85% of Nordisk’s business comes from selling its diabetes treatments. In 2002, it founded the The World Diabetes Foundation which aims to alleviate suffering from diabetes around the globe by providing funding for prevention and care projects in low and middle-income countries.
Novo Nordisk A/S is a pioneer in gene engineering technology. The company initially extracted insulin from the pancreatic glands of pigs in 1923, when it first commercialised the production of insulin. Using gene editing technology, the firm managed to convert the pig insulin into human insulin by 1982. Five years later in 1987, Novo Nordisk A/S produced human insulin from yeast cells, eliminating the need for pig glands. Nordisk has not only produced a wide variety of insulin variants, but developed new strains of yeast which produce larger quantities of yeast whilst also lowering the consumption of raw materials.
Deutsche Bank analyst Emmanuel Papadakis gave Novo Nordisk A/S a ‘Buy’ rating on March 16, noting that the firm looks well-positioned to enjoy another decade of leadership in diabetes medicine. Novo Nordisk A/S posted an annual revenue of $22.40 billion for 2021, showing a 15.18% increase from 2020.
Investment firm LRT Capital Management talked about Novo Nordisk A/S in its Q4 2021 investor letter. The fund said:
“Novo Nordisk is the global leader in insulin, which is, sadly, a growing business as more and more people around the world suffer from diabetes. Millions of people need daily injections of insulin to stay alive, a number that, unfortunately, is likely to continue to grow by millions more in the coming decade. It may seem at first glance that insulin should be a commoditized business, after all, it was discovered and synthesized over a hundred years ago, but nothing could be further from the truth. There are many types of insulin and Novo Nordisk has spent billions on R&D over the years to develop new products. On February 11th, the company reported favorable results from a phase-3 trial of Semaglutide, a drug that is currently used for Type 2 diabetes treatment. The study evaluated the use of Semaglutide for weight loss treatment in non-diabetic patients and found a significant impact on weight loss for patients receiving Semaglutide vs. the placebo control group. If Semaglutide is approved for weight loss treatment, we expect it will be meaningfully accretive to the company’s bottom line.
The company’s proprietary product line supports returns on invested capital of over 40%, and while sales growth is relatively slow (+6% annualized CAGR over the past decade), the company’s shares trade at a reasonable valuation of only 22x forward earnings. For a company with an extremely predictable business, high returns on capital, and an easily forecastable future, we believe this to be highly attractive.”
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Disclosure. None. 10 Most Profitable Biotech Companies in the World is originally published on Insider Monkey.
