S&P 500 investors can expect an average annual return of 7%, with upside potential based on the speed of technological innovation, according to DataTek Research.
Given the growing importance of innovation, those putting their money into pharmaceutical companies might want to consider that the best bets may be in shares of Pfizer Inc. (PFE, Financial), Johnson & Johnson (JNJ, Financial) and Novartis AG (NVS, Financial). These members of Big Pharma topped the list of IDEA Pharma’s 2021 CNS Innovation Index.
As reported in Markets Insider, DataTek notes that the main drivers of past stock market returns have been interest rates, macroeconomics, geopolitics and innovation. With interest rates near rock bottom, macro growth is forecast to be slow and geopolitics is in flux, investors will have to rely on tech innovation to drive future returns.
What exactly is innovation? IDEA describes it as the “new and novel use of technologies and strategic partnerships to create real and realizable value for a company—not an abstract one.” It doesn’t mean the development of a new treatment or technology. Although those may be key aspects of innovation, IDEA emphasizes that they’re really inventions, which may or may not translate into a favorable investor return
The newest version of the index looks at which drugmakers have strong continuity with previous years and examines which are achieving innovation in three areas:
- Clinical development, which paves the way for growth with new technologies and getting the most out of clinical trials.
- Commercial collaborations and operations, including manufacturing and infrastructure, which are essential components of drug production.
- Investment in digital therapeutic and other research into the most promising tech and academic advancements, including the use of incubators and competitions to discover new avenues for growth at the earliest stages
Pfizer moved up three spots to the top of the 2021 list. Not only was the U.S. drug giant a key player in the worldwide fight against Covid-19, but it also scored well in commercial partnerships, clinical development and research, ranking fourth, second and first in those respective categories.
Its shares may have begun reflecting its innovative efforts of past years. The stock is up more than 35% in the past year.
Coming in right behind Pfizer was Johnson & Johnson, which has a huge pharmaceutical business and a stellar consumer products group (which is being spun off) and medical devices and robotic surgery technologies. The company's innovation was spread across a combination of new medical devices, artificial intelligence-based drug discovery pacts and remote patient monitoring partnerships.
Johnson & Johnson's stock is flat in 2021, but is up about 12% in the past year and 44% in the past five, outpacing the iShares U.S. Pharmaceuticals ETF
Novartis joined the elite in the 2021 Index, climbing three spots to number three. The Swiss pharma earned its place due to commercial partnerships and a concentration on digital diagnostics, remote patient monitoring, mobile health services and digitally-enabled care, according to IDEA.
Novartis shares could use a lift, having declined about 6% in the past year, well below its gain of 26% in the past five years.
Following is a list of the top 10 in the IDEAA Innovation Index:
