Large Cap Biopharmaceuticals-Core Holdings for Your Healthcare Portfolio Until M&A Action Picks UP…Update-4…JNJ

Update-4 10/17…JNJ now reporting as a stand-alone biopharmaceutical and medical device Company raised its profit forecast helped by demand from it anti-inflammatory drug Stelara and reported a gain of $21 B from the spin-off of its consumer health unit Kenvue. Adjusted profit for 2023 is expected to be $10.07-10.13.THe Company also expects strong demand for two new cancer drugs. The Company will also restructure its orthopedic business after a sales miss.

Update-3.. 10/16...Pfizer updates COVID vaccine and Paxlovid forecast, Jeffries upgrade.Revenue guidance reduced to $58-$61 B solely for COVID products as vaccination rates fall.

Update-2 10/13...UNH Beats revenue and earnings up 14%, cash flow from OPS $6.9B.

Update-1 10/11.  11a PDT Medtech shares are selling off with the iSharesUS Medical Device ETF down 4.9% to $46.26 with many large caps hit hard. Apparently utilization rates are lower and there may be connection to blockbuster weight loss and diabetes drugs. One good example of how these drug stocks are impacting healthcare like Novo Nordisk (NVO), up 6.9%, as the drug Ozempic showed early signs of success in delaying progression of kidney disease. LLY was up 3.9%.

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12:43 p Amgen (AMGN) upgraded by Leerink from Market perform to Outperform. AMGN up 4.6%.

CORE Biopharma Holdings for a Diversified Healthcare Portfolio

• Large Biopharmas are your core holdings for Growth and Value.
• Need the M&A boost and break-through clinical news to get SMID stocks going.
• Top Picks Are:  ABBV, MRK, REGN, UNH, VRTX.

Healthcare has not been a strong sector in 2023. Despite its history of being defensive in turbulent times the sector has underperformed as higher rates curb buyers sentiment. its about that 5% short term treasury yield. But many of our top large cap picks-ABBV, LLY, REGN, VRTX – have easily outperform the DOW and the S&P. You know a lot of the underperformance comes from the Biden Administration policies on drug pricing and M&A. But within the pharmaceutical market for example the AMGEN/ Horizon deal has finally been cleared so we should expect a big boost in deals ahead if they are not mega-mergers.  Moreover the R&D pipelines for most f the companies are robust. Although the XLV is down 4.3% YTD, UNITED Health had a big comeback and is down only 1%.

Geopolitical disruption today with the WAR in Israel causing  a boost in oil prices. We need to see if war against HAMAS can be contained and whether the more expansive deal with the Saudis can move on. In the background is whether Iran is involved more directly in the conflict. Defense siocks were up about 6%-8%.

Biotech stocks remain in a funk as measured by 2023 lows in the XBI down 13%. The more mid cap wighted IBB is also down 5%. The market rallied last week with gains in TECH stocks and the QQQ Nasdaq-100 is up 37% YTD.  Here are some stocks to watch and strategies to consider as we move into the seasonally strong fourth quarter:

1. Although healthcare providers have been weak with (IHF) U.S. healthcare Providers down 6.62% YTD this should be a core healthcare holding but we prefer UNH.You can also try Humana (HUM) down 2.74% YTD  but up 7.12% over the past month.
2. Our contrarian pick  or “Dogs of the DOW” play is Pfizer down 35% YTD but with a dividend of 5% and a P/S of 2.23.
3. Astra Zeneca (AZN)and Gilead Sciences (GILD)  have good value and favorable analysts ratings, and I would add to AZN. Bristol Myers Squibb is on the government pricing hit list with their Eliquis drug. And today BMY announced that they would buy Mirati Therapeutics for $4.8B plus a CAR to bolster their targeted oncology portfolio. Mirati has an FDA approved KRAS inhibitor for treated of Non-Small cell lung cancer.
4. Lilly (LLY) has been a top pick because they revolutionized treatment of obesity and diabetes with their Mounjaro drug a GLP-1 receptor. Lately the stock has lost a little momentum but remains a top holding.
5. ABBVIE has been hit hard by loss of Humira sales due to generic competition. But sales of Abbvie’s newer anti-inflammatory, RINVOQ and SKIRIZI are expected to help close the gap in sales. Over 90 products. are in the Abbvie pipeline with heavy focus on immunology and oncology. Recently the Company invested in its Neuroscience portfolio with a $550M deal for Mitokinin.
6. Regeneron is a  growth stock with several leading marketed products for treatment of macular  degeneration Eylea  and Dupixent for asthma for atopic dermatitis. as well as a broad  pipeline of oncology and immunology products. REGN is a leader in development of monoclonal antibodies
7. Vertex has a leading franchise in Cystic Fibrosis and some important catalysts lie ahead.A novel pain candidate VX-548 is in Ph 3 with results expected in coming months. The R&D pipeline also includes late stage products for kidney disease, sickle cell and follow=on products for CF.

LONG: ABBV, GILD, LLY, MRK, PFE, REGN, VRTX.