The potential of emerging markets for the larger pharmaceutical companies is underappreciated, says Damien Conover, CFA, Editor and Director at Morningstar, Inc. He says about 10 years ago, the emerging markets accounted for less than 5% of total sales, and over the next five years, they will represent more than 20%.
“You’ve got a tremendous amount of growth in emerging markets. I think that’s going to really help drive some sales through this patent cliff that big pharmaceutical firms are going into. It should also help fuel new product growth coming from the pipeline, augmenting growth coming into the 2014 to 2015 time period,” he said.
Conover says one of his top picks is Abbott Laboratories (ABT) because the diversified pharmaceutical company is a leader in the sector with its exposure to the emerging markets. Abbott also has strong divisions, including its nutritionals and vascular businesses, and has a relatively modest patent headwind.
“[Abbott] is a company that we think is undervalued. We like it because, while the rest of the industry is approaching the patent cliff, Abbott has a relatively modest patent headwind. We also really like one of its key products, HUMIRA, which is closer to 20% of its total sales and even more of the bottom line,” he said.
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