Credit Suisse says large cap biopharma offers defense in macro storm (NYSE:PFE)

Citing historic efficiency and fundamentals, Credit score Suisse recognized U.S. large-cap biopharma as a beautiful defensive pocket amid lingering macro dangers. Initiating protection on seven U.S. large-cap pharma shares with 4 Outperform scores, the analysts Trung Huynh and Carson Wong constructed their thesis utilizing the agency’s proprietary {industry} database and claims information from over 120M Individuals.

“With the macro backdrop uncertainty unlikely to resolve over the subsequent few months, we see Massive-Cap BioPharma as a key sector to personal for defensive publicity at an inexpensive worth,” the duo wrote in a analysis observe on Thursday.

With the Zantac authorized legal responsibility danger clouding the EU pharma giants Sanofi (SNY) and GSK (GSK), the analysts favor their U.S. counterparts noting the latter has outperformed throughout previous macro volatility and benefitted from a rising dollar given USD-dominated gross sales and income.

Moreover, the analysts observe that whereas pharma’s excessive margins can face up to inflation, its long-term development drivers, excessive dividends, and strong steadiness sheets stay intact. Nonetheless, Huynh and Wong argue that regardless of providing larger earnings per share development, the subsector’s ahead PE stays engaging relative to different defensive sectors.

Commenting on drug pricing, the duo notes that the considerations triggered by the enactment of the 2022 Inflation Discount Act within the U.S. are overblown, and the impression of patent expiry past 2025 stays unclear.

Taking a deeper dive into the {industry}, the analysts choose shares with “larger short- to mid-term development and firms that may have an effect on significant change by means of pipeline success, product execution, and impactful M&A.”

Credit score Suisse points Outperform scores on Merck (MRK) and AbbVie (ABBV), naming the shares as its Prime Concepts primarily based on their underappreciated future catalysts and comparatively low valuation.

Whereas Merck (MRK) is extremely reliant on most cancers drug Keytruda, the considerations over its lack of exclusivity in 2028-end are overdone, the analysts famous, estimating a 12-month worth goal of $120 and naming the inventory as its Prime Progress Decide.

AbbVie (ABBV) is the agency’s Worth Decide. With a $170 per share goal, the analysts seemed previous its Humira patent cliff subsequent 12 months, stating that the corporate presents the best dividend yield amongst friends, whereas its ex-Humira five-year CAGR trails solely that of Eli Lilly (LLY).

Regardless of having industry-leading development, Lilly (LLY) faces a binary occasion in 2H 2023 with Part 3 information anticipated for its Alzheimer’s candidate Donanemab the analysts contend. Nonetheless, they problem an Outperform score and $395 goal for the corporate noting a beautiful danger/reward setup forward of the readout and citing its potential within the weight problems market because of diabetes remedy Mounjaro.

Whereas its fortunes are intently tied to the COVID-19 vaccine, the long run utility of which stays unsure, Pfizer (NYSE:PFE) presents stable development prospects even with out the blockbuster shot it co-developed with BioNTech (BNTX), the analysts wrote.

Pfizer (PFE) has misplaced ~15% this 12 months, and Credit score Suisse factors to the corporate’s engaging valuation. Issuing an Outperform score and $55 goal, the analysts cite the underappreciated potential of its pipeline belongings, together with the respiratory syncytial virus (RSV) vaccine and mRNA-based flu shot.

In August, the New York-based pharma large mentioned it could search regulatory approval for the RSV vaccine candidate RSVpreF within the coming months. The corporate has additionally began dosing in a Part 3 trial for its quadrivalent mRNA-based flu vaccine candidate and a Part 1 trial for a mix vaccine concentrating on COVID and flu primarily based on the identical expertise.

In protection initiation, Credit score Suisse has issued Impartial scores on Bristol-Myers Squibb (BMY) and Johnson & Johnson (JNJ), which have traded flat over the previous six months, as proven on this graph.

With $78 and $170 per share worth targets for the businesses, respectively, the group notes their gentle development trajectory and flags considerations over the approaching lack of exclusivity for a few of the key income turbines.

Nonetheless, the analysts slapped Amgen (AMGN) with an Underperform score and $240 per share goal, citing its latest share worth rally and overly optimistic long-term forecasts for KRAS G12C inhibitor Lumakras which was granted FDA approval in 2021 for lung most cancers.

Amgen (AMGN) has outperformed rivals with a ~14% achieve over the previous three months as Wall Road cheered its early-stage weight reduction remedy AMG133.