Pharma Stocks: 5 Biggest Companies in 2024

What does the pharmaceutical industry do?

The pharmaceutical industry encompasses a variety of companies that have different — although sometimes overlapping — roles to play. The most famous players are the "Big Pharma" companies. These giants often have a variety of subsidiaries, large pipelines and many products in their portfolios.

There are also smaller pharma R&D companies, which sometimes get acquired by larger firms if their work seems promising. Companies in these categories research, develop and bring to market drugs aimed at filling unmet needs, or helping people who are resistant to pre-existing treatments.

Once patents run out on prescription drugs, generic drug manufacturers create much cheaper generic versions. Wholesale companies also play a large role in the pharma sector. According to Common Wealth Fund, wholesalers have four areas through which they affect drug buying and distribution: "setting generic drug prices, leveraging list price increases, competing in specialty drug distribution, and mitigating or exacerbating drug shortages."

What is the big pharma business model?

Big Pharma companies have a fairly consistent business model. Often, the company's R&D team will slowly develop a new drug through many stages of testing to prove the drug's efficacy, safety and necessity.

If all trials are completed successfully, the company will apply to government organizations such as the FDA, which must approve the drug before it can be mass produced, marketed and sold. Companies can skip a number of these steps by acquiring smaller companies, or through in-licensing, which results in two companies sharing the burden of a drug's development through to commercialization. However, it's worth noting that large pharma companies have many drugs in their pipelines at any given time, and many don't make it to approval.

Once a drug is approved by the relevant health organization, it can be marketed and prescribed. Because patents expire after 20 years, companies lobby and advertise to try to get as many sales as possible during that window.

Who are the "Big 3" in pharma?

The "Big 3" in pharma refers to the three largest wholesalers: AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH) and McKesson (NYSE:MCK). Collectively, those three companies account for over 92 percent of wholesale prescription drug distribution in the US.

Which country is number one in the pharma industry?

The US is the top pharmaceutical country, with five of the top 10 pharma companies by revenue headquartered in the nation. The country is also in the lead when it comes to consumer spending on pharmaceuticals — this is due to the high cost of brand-name drugs. Aside from that, the US is the top country globally for R&D spending — companies that are part of PhRMA, a trade group that represents US biopharmaceutical companies, spent US$100.84 billion on R&D in 2022 out of a total of US$244 billion spent by pharmaceutical companies globally that year.

What are the problems in the pharmaceutical industry?

One of the largest problems with the pharmaceutical industry, particularly in the US, is the high cost of treatments. According to a study looking at American prescription drug spending between 2016 and 2021, prescription drug prices were 2.5 times the cost on average of prices in similar high-income nations.

In early 2023, US President Joe Biden signed the Inflation Reduction Act (IRA) into law intending to reduce healthcare costs and improve access to medications for patients; however, it may present new challenges and opportunities for pharmaceutical companies as they adapt to the evolving regulatory and market landscape.

Critics have argued that the IRA could negatively impact drug development and innovation due to additional regulatory hurdles and increased operational costs, potentially reducing the incentive to invest in R&D. Additionally, the IRA requires drug companies to pay rebates to Medicare if they raise the price of drugs faster than inflation. If the industry can't adjust its prices in response to market conditions, it could deter investment in new drug development.

What is the future of pharmaceuticals?

Pharmaceutical companies will have to adapt to changing times. The world is shifting, with economic woes, geopolitical disruptions and supply chain concerns affecting nearly every sector. Innovation continues to accelerate as well, and the medical landscape has changed in the wake of COVID-19. Additionally, the US government is making moves to address the astronomical prices of prescription medicine as the industry comes under more scrutiny.

For a look at what is else is effecting the market, read our 2024 Pharma Market Forecast.

Are pharmaceutical stocks risky?

While established players like the Big Pharma and wholesale companies discussed above should be relatively consistent, small companies are make-or-break depending on whether their drugs are successful. This means that investors could see much higher returns compared to large companies, but run the risk of taking massive losses in the case of failure.