Morningstar on Big Pharma pipelines: Novartis best, Abbott worst
Morningstar has an article evaluating the drug pipelines of Big Pharma. Basically, Novartis is the best overall and Abbott Labs is the worst. In terms of drugs in late-stage trials, GlaxoSmithKline and Johnson & Johnson do lead Novartis slightly; Novartis beats them in growth potential of present drugs. Pfizer and Merck/Schering trail slightly in late-stage drugs.
There's a consensus that Big Pharma is undervalued today due to unnecessary worries about health reform. I'd look to buy more of Novartis and J&J.
Abbott is an interesting case. It yields more than J&J and is developing a track record of significant increases. Its current drug portfolio is strong and has relatively few near-term expirations. Josh Peters, editor of M*'s DividendInvestor newsletter, owns Abbott (and J&J). He projects that Abbott could grow its dividend by 10% annually, 2% faster than J&J. However, as the other M* article notes, Abbott's future pipeline is quite weak.
Abbott obviously needs to make acquisitions, and its financial strength means that it's in a position to do so. To be blunt, though, a strong pipeline of late-stage drug candidates is a better bet than potential acquisitions. I'd buy Novartis first, and Novartis actually yields more than Abbott. However, US investors need to note that Switzerland deducts a 15% (or so) tax. You can claim that from the IRS as foreign tax paid, so it's best (but not mandatory) to hold Novartis in a taxable account. Novartis also pays its dividends Euro-style, in one big whack once a year.