Global cancer spending topped $100 billion for the first time after climbing a whopping 10% in 2014. And that’s a major "Buy" signal for one of the top biotech stock picks we’ve been recommending at Money Morning.
According to a report from the IMS Institute of Health, rising drug prices and increased incidence of cancer led to the 10% spike in drug spending last year.
"The increased prevalence of most cancers, earlier treatment initiation, new medicines and improved outcomes are all contributing to the greater demand for oncology therapeutics around the world," IMS’s Senior Vice President Murray Aitken said in a statement.
Another big reason for the spike in sales is the creation of “cancer immunotherapies” by major pharmaceutical companies like Merck & Co. (NYSE: MRK) and Roche. These immunotherapies help the body’s immune system fight cancerous tumors. They are also extremely expensive. According to the Financial Times, they can cost up to $150,000 per year.
Much of that spending took place in the United States. In 2014, 42.2% of the world’s cancer spending came from the United States.
Over the past five years, spending on cancer treatments has seen a compound annual growth rate of 6.5%. And that’s just the start…
The IMS expects yearly growth between 6% and 8% through 2018. Even at the most conservative end of that range, spending should top $126 billion by 2018.
According to the World Health Organization, the incidence of cancer will increase by a whopping 70% in the next 20 years. That’s due to a graying world population. The UN projects the number of people aged 65 and over will triple by 2050.
While that news is concerning from a health perspective, it does represent a catalyst for one of our favorite biotech stock picks of 2015.
Money Morning's Executive Editor Bill Patalon first recommended this biotech stock in 2012 as part of a spin-off play. Since coming to the market, it has already gained 100.4%. Here’s the pick…
This Top Biotech Stock Has Room to Run
The stock Patalon has been recommending is AbbVie Inc. (NYSE: ABBV).
One of the biggest catalysts for ABBV stock came on March 4, when it announced it would purchase Pharmacyclics Inc. (Nasdaq: PCYC) for $21 billion. PCYC develops the blood cancer drug Imbruvica. The drug is expected to have sales near $1 billion in 2015.
PCYC was also one of Patalon’s picks, and it brought profits of more than 800% from the time he recommended it, through the announcement of the purchase.
"Imbruvica is already a blockbuster," Patalon said in March. "It generated $548 million in revenue in the fourth quarter and is expected to go to at least to $5 billion a year at its peak – and maybe more."
AbbVie beat out rivals Novartis AG (NYSE ADR: NVS) and Johnson & Johnson (NYSE: JNJ) for PCYC.
ABBV stock is already starting to see the benefits. Since that March 4 announcement, the biotech stock has climbed 10.6% compared to a gain of just 0.3% for the Dow Jones.
Another bonus for investors is the biotech stock’s healthy dividend. ABBV pays a quarterly dividend yield over 3%.
In the last 12 months, ABBV stock is up 26.27%. That’s more than twice the return of the Dow Jones, which is up 10.18% in that time.
Next quarter, analysts expect ABBV to post an earnings increase of 28% from last year. Revenue is expected to increase 13.2% as well. Odds are strong that the company will beat earnings. In the last four quarterly reports, ABBV has beaten expectations by an average of 9.4%.
Investors can expect earnings and revenue to climb as cancer spending grows between 6% and 8% over the next three years.
One of our top #biotech picks $ABBV is up 11% in the last two months alone. After acquiring $PCYC it has plenty of room to run.
— Kyle Anderson (@KyleAndersonMM) May 15, 2015
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