Pharmaceutical Stocks To Watch in 2025 (PFE, LLY, BMY, VRTX)

Annual revenues in the pharmaceutical industry top $1.6 trillion a year, and with the population in many key markets ageing, that number looks set to grow even further.

The Covid 19 pandemic brought pharmaceutical stocks to increased prominence with any firm that announced successful tests on vaccines seeing significant growth. With this phase now largely in the rear view mirror, there is more of a focus on fundamentals, and product pipelines, as it should be.

Some of the earlier speculation in health stocks meant some pharma stocks overheated but some years have past, and dust settled. New phases of interest in pharma surround GLP-1 treatments for weight loss amongst others. With inflation and interest rates now showing some signs of stabilising, pharma stocks continue to offer a degree of protection from falling future revenues in a time where markets have seen other sectors really heat up.

Pharma Stocks We are Watching

One of the last transactions any consumer would scale back on would be one related to much-needed drugs, so any sign of earnings contraction in periods to come could see investors move from discretionary sectors and into defensives.

Here are a few of the bigger names we are watching in the sector.

Pfizer (NYSE: PFE)

Pfizer's stock (NYSE: PFE) has experienced a significant downturn through 2024, dropping 13.15% as the wider S&P 500 offered up gains above 25%. With a new activist investor in Starboard taking on board a $1billion stake in the firm, we can potentially expect to see some changes both on board level, and in operational leadership.

Comments from Starboard surrounding the previous acquisition strategy employed by Pfizer have indicated the firm are looking for some major changes, and this could bring a shift in sentiment as the new year progresses. A current dividend yield above 6.5% also provides a buffer.

Eli Lilly (NYSE: LLY)

Eli Lilly is projected to grow earnings per share by 32% annually over the next four years, driven by the weight loss drug Zepbound. Despite a recent pullback in the LLY stock price, gains of 35% year-to-date remain an outperformer to the broader market, and moves the company above $750 billion in market cap.

The longer term sentiment in Eli Lilly remains bullish, and with support again being found around the $725 level, there appears to be far more potential to the upside than down, particularly if sensible stops are put in place.

Bristol-Myers (NYSE: BMY)

Bristol-Myers Squibb offers a robust dividend yield and has shown resilience with a 6% sales growth, despite recent losses due to one-time write-offs. Its consistent performance makes it attractive for dividend-focused investors, and with the stock looking to retake the $60 level, there could be a breakout on the horizon.

The BMY stock price has had an excellent second half of 2024 so far, with gains off the July lows now up above 50%. Momentum is clearly building, and this could be one to watch after years of ranging.

Vertex Pharmaceuticals (NASDAQ: VRTX)

Vertex is a leader in RNA-based therapies, with its spinal muscular atrophy drug Spinraza achieving blockbuster status. The firm's collaboration on the CRISPR-based treatment Casgevy marks a significant advancement in personalized medicine and the innovative pipeline and strong market position make it a notable player in the biotech sector.

Early-stage trials for treatments like VX-880 for Type 1 Diabetes, which has shown positive results. Advanced trials for therapies such as VX-548, which is a non-opioid pain medication with significant commercial potential

Things to Know Before Investing In Pharmaceuticals

The pharmaceutical sector is hard to ignore; firms operating in the industry provide a service that will not go out of fashion. That being said, stocks in the sector do have some distinct features which investors need to understand.

The pipeline of new drugs – The time and cost of developing new drugs play a significant role in the sector. The average time to create a new drug is more than ten years, and the average price tag is estimated to be $2.6bn. Both of those numbers could increase as governments and regulators take a more risk-averse approach. Good and bad news on test results can significantly impact pharma stock share prices, but the diversity of a firm's portfolio of new drugs also needs to be considered.

Market forces – After investing years in R&D, there is still no guarantee that health providers will consider the drug feasible or appropriate for patients. There is a risk that pharma companies are beaten down on price as while they know the health provider ‘needs' the new drugs, the health provider knows the pharma company's products can't be used for any other purpose than treating patients.

Legal liability – Companies can be forced to withdraw their products from the market, and lawsuits are unfortunately an occupational hazard for pharma companies.

Strong dividends – Given the different risks inherent to the sector, pharma stocks' reputation for paying dividends to investors is slightly inconsistent. Cash payments are similar to those made by companies in much lower risk sectors such as banking and retail, meaning the stocks in the pharma sector have the characteristics of both tech stocks and blue-chips.