4 Large-Cap Pharma Stocks to Watch as Industry Recovery Gains Steam

The drug and biotech sector has recovered somewhat in 2026 after remaining muted for most of 2025. Drug pricing agreements of Big Pharma with the Trump administration, strong quarterly results, bullish outlook for 2026, robust pipeline activity and a flurry of M&A deals have led to the industry’s recovery. However, it faces its share of headwinds like regular pipeline setbacks, slow ramp-up of newer drugs, patent cliffs, regulatory risks and policy and pricing uncertainty. Despite the headwinds, the industry’s focus on innovation and positive pipeline/regulatory developments signals a favorable long-term outlook. Overall, large drugmakers have several robust revenue streams and are mostly profitable companies, making them safe havens for long-term investment.

Among the large drugmakers, Eli Lilly LLY, Johnson & Johnson JNJ, Sanofi SNY and Bayer BAYRY are worth retaining in one’s portfolio.

Industry Description

The Zacks Large Cap Pharmaceuticals industry comprises some of the largest global companies that develop multi-million-dollar drugs for several therapeutic areas, like neuroscience, cardiovascular and metabolism, rare diseases, immunology and oncology. Some of these companies also make vaccines, animal health products, medical devices and consumer-related healthcare products. They invest millions of dollars in their product pipelines and line extensions of their already-marketed drugs. Continuous innovation is a defining characteristic of large pharma companies. They constantly invest in drug development and the discovery of new medicines. Regular mergers and acquisitions, and collaboration deals are other key features of large drugmakers.

What's Shaping the Future of the Large-Cap Pharma Industry?

Innovation and Pipeline Success: For big drugmakers, an innovative pipeline is a competitive necessity and key to top-line growth. Pharma companies are continually striving to ramp up innovation and allocate a significant portion of their revenues to R&D. Drugmakers are integrating artificial intelligence (AI) to accelerate the drug discovery process for delivering more effective therapies. New technologies, such as gene editing, mRNA vaccines, precision medicine and next-generation sequencing, are revolutionizing the drug and biotech industries.

Innovation is at its peak with key spaces like rare diseases, next-generation oncology treatments, obesity, immunology and neuroscience attracting investor attention.

Successful innovation and product line extensions in key therapeutic areas, along with strong clinical study results, may serve as important catalysts for these stocks.

Aggressive M&A & Collaboration Activity: The sector is characterized by aggressive M&A activities. Given that it takes several years and millions of dollars to develop new therapeutics from scratch, large pharmaceutical companies, sitting on substantial cash reserves, regularly acquire innovative small and mid-cap biotech companies to expand their pipelines.

Also, sloppy sales of mature drugs, dwindling in-house pipelines, government scrutiny of drug prices and the growing use of AI for drug discovery whet the M&A appetite of large drugmakers.Moreover, collaborations and partnerships with smaller companies are in full swing. M&A activity has shot up in 2026 after a lull in the past couple of years.

Fast-growing and lucrative markets such as oncology, rare disease and gene therapy are focus areas for M&A activities. Recently, areas such as obesity and inflammatory bowel disease have been attracting buyout interest.

Among some recent deals, Pfizer, Novo Nordisk and Roche announced multi-billion-dollar deals targeting the fast-growing, lucrative metabolic and obesity-related disease space. In other areas, some key recent deals include Gilead-Arcellx, Sanofi-Dynavax and BioMarin-Amicus.

Pipeline Setbacks & Other Headwinds: The failure of key pipeline candidates in pivotal studies and regulatory and pipeline delays can be setbacks for large drug companies and significantly hurt their share prices. Other headwinds for the industry include pricing and competitive pressure, generic competition for blockbuster treatments, a slowdown in sales of some of the most high-profile older drugs, Medicare drug price negotiations and increasing FTC scrutiny of M&A deals.

Macroeconomic Uncertainty: Uncertain macroeconomic conditions, including the risk of inflation, a slowing labor market and instability in the financial system, along with escalating geopolitical tensions in various parts of the world, have increased broader economic woes.

Uncertainty around tariffs and trade protection measures in the United States remains. President Trump has threatened to impose a 100% tariff on pharmaceutical imports unless a company builds pharmaceutical plants in the United States. Trump’s repeated threats to impose tariffs on pharmaceutical imports are aimed at pushing American pharma companies to shift pharmaceutical production back to the United States, primarily from European and Asian countries.

Zacks Industry Rank Indicates a Dull Outlook

The Zacks Large Cap Pharmaceuticals industryis an 11-stock group within the broader Medical sector. The group’s Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.

The Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #172, which places it in the bottom 29% of 243 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few large drug stocks that are well-positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s performance and its current valuation.

Industry Versus S&P 500 & Sector

The industry has outpaced the Zacks Medical Sector but underperformed the S&P 500 in the past year.

Stocks in this industry have collectively risen 10.8% in the past year compared with the Zacks Medical Sector’s increase of 1.5%. The Zacks S&P 500 composite has risen 20.5% in the said time frame.

Industry's Current Valuation

Based on the forward 12-month price-to-earnings (P/E), a commonly used multiple for valuing large pharma companies, the industry is currently trading at 18.70X compared with the S&P 500’s 20.77X and the Zacks Medical Sector's 21.38X.

Over the last five years, the industry has traded as high as 20.80X, as low as 13.09X and at a median of 16.40X, as the chart below shows.

Forward 12-Month Price-to-Earnings (P/E) Ratio

 

4 Large Drugmakers to Watch

Eli Lilly:  It has seen tremendous success with Mounjaro and Zepbound, with demand rising rapidly. In 2025, the drugs generated combined sales of $36.5 billion, comprising around 56% of the company’s total revenues.

In addition to Mounjaro and Zepbound, Lilly has secured approvals for several other new therapies over the past few years. These include Omvoh, Jaypirca, Ebglyss and Kisunla. These newly approved drugs are also contributing to Lilly’s revenue growth. Lilly expects its new drugs, Mounjaro, Zepbound, Ebglyss, Jaypirca, Inluriyo, Kisunla and Omvoh to drive sales growth in 2026.

Lilly is investing broadly in obesity and has several new molecules currently in clinical development with a range of oral and injectable medications with different mechanisms of action. A key drug in its obesity pipeline is the once-daily oral GLP-1 small molecule called orforglipron. Lilly has filed regulatory applications in the United States, the EU, and several other countries seeking approval for orforglipron in obesity. Lilly expects to launch orforglipron for obesity in the United States during the second quarter of 2026 and in most international markets during 2027. Rival Novo Nordisk has already launched an oral version of its obesity drug, Wegovy.

In the past couple of years, Lilly upped its efforts to diversify beyond GLP-1 drugs by expanding into cardiovascular, oncology and neuroscience areas. In 2025, it announced several M&A deals.

Lilly has its share of problems. Prices of most of Lilly’s products are declining in the United States. Rising competition in the GLP-1 diabetes/obesity market is a key headwind. Also, sales of late-life cycle products like Trulicity, Taltz and Verzenio are expected to be flat to down in 2026.

Lilly has a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .

The stock has risen 13.2% in the past year. Estimates for Eli Lilly’s 2026 earnings have improved from $33.15 per share to $33.86 per share in the past 60 days.

Price and Consensus: LLY

 

J&J: The company has shown steady revenue and EPS growth for years. J&J outperformed financial expectations in 2025 and looks optimistic for continued strong momentum in 2026, with a target to generate around $100 billion in revenues in the year.

The Innovative Medicine unit is showing a growth trend. The segment’s sales rose 4.1% on an organic basis in 2025 despite Stelara's loss of exclusivity (LOE) and the negative impact of the Part D redesign. Growth was driven by J&J’s key drugs like Darzalex, Erleada and Tremfya. New drugs like Carvykti, Tecvayli, Talvey, Rybrevant and Spravato also contributed significantly to growth.

J&J’s MedTech business has also improved in the past three quarters. MedTech sales rose 4.3% on an organic basis in 2025. J&J expects sales growth in both segments to be higher in 2026.

The company also rapidly advanced its pipeline in 2025, attaining significant clinical and regulatory milestones that will help drive growth through the back half of the decade. J&J has also been on an acquisition spree and acquired Intra-Cellular Therapies and Halda Therapeuticsin 2025.

J&J faces its share of headwinds, like the legal battle surrounding its talc lawsuits, the Stelara patent cliff, the upcoming LOE of key drugs Opsumit and Simponi and softness in MedTech China.

J&J has a Zacks Rank #3 at present.

The stock has risen 48.5% in the past year. The Zacks Consensus Estimate for 2026 earnings has risen from $11.49 per share to $11.54 per share over the past 60 days.

Price and Consensus: JNJ

Sanofi: Its Specialty Care unit is on a strong footing, particularly with the outstanding growth trajectory of itsblockbuster immunology drug, Dupixent, a key top-line driver. Dupixent enjoys strong demand across all approved indications and geographies.Sanofi possesses a leading vaccine portfolio and continues to expand its vaccine business further with its pipeline comprising multiple programs across pneumococcal disease, yellow fever, meningitis, RSV and pandemic preparedness. Sanofi is also seeing good uptake of its new medicines and vaccines. Sales of its newly launched medicines and vaccines grew 34% in 2025. Sanofi has some potentially transformative therapies in oncology, immunology, hematology, neurology, and vaccines. It has also been active on the M&A front.

However, the generic erosion of Aubagio in all key markets, lower sales from mature products, competitive pressure on influenza vaccines and regular pipeline setbacks are key headwinds.

Sanofi has a Zacks Rank #3 at present. The Zacks Consensus Estimate for the French drugmaker’s 2026 EPS has risen from $4.89 per share to $4.97 per share over the past 60 days. The stock has declined 13.9% in the past year.

Price and Consensus: SNY

Bayer: The company’s key drugs, Nubeqa for cancer and Kerendia for chronic kidney disease associated with type II diabetes, are fueling growth in its Pharmaceuticals division, making up for the decline in sales of oral anticoagulant Xarelto. Bayer is also working to expand the labels of Nubeqa and Kerendia, which, if successful, can further drive growth.

Multiple high-impact launches across oncology, cardiology, and women’s health further extend the pharma division’s growth runway. Some key drug approvals in 2025 were Lynkuet (elinzanetant) for moderate-to-severe vasomotor symptoms (VMS) associated with menopause and Hyrnuo (sevabertinib) for HER2-mutant non-small cell lung cancer.

Bayer is making good pipeline progress.  The company has expanded its pipeline in new modalities of cell therapy through the acquisition of BlueRock, and in gene therapy, through the AskBio buyout. 

However, sales in the Crop Science division declined significantly in the past couple of years due to lower volumes and prices for glyphosate-based products.

This Zacks Rank #3 company’s shares have risen 95.6% in the past year. Estimates for its 2026 earnings per share have been stable at $1.41 over the past 60 days.

Price and Consensus: BAYRY

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Eli Lilly and Company (LLY): Free Stock Analysis Report
 
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This article originally published on Zacks Investment Research (zacks.com).

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