Investing.com -- Bernstein said Thursday it has started research coverage of US biopharma stocks, voicing a positive outlook for the sector.
The firm’s analysts highlighted the sector's willingness to invest in research and development (R&D) to drive future revenue growth, despite facing increasing industry pressures, such as competition and regulatory challenges, including the effects of the Inflation Reduction Act (IRA) in the United States.
Bernstein's bullishness is based on the industry's high operating margins, which exceed 40%, and the rapid advancements in biology that are expected to lead to a deeper understanding of complex diseases.
“Breakthroughs should enable deeper understanding of targets to intervene in tough-to-treat diseases and facilitate new types of tools to impact biological markers of disease,” Bernstein analysts said in a note.
While the analysts are optimistic about the industry's outlook, they note that the sector's in-line stock performance against the S&P 500, along with historically average valuations and growing industry pressures, “suggest that investment outcomes will be more tied to specific company opportunities.”
The firm has issued Outperform ratings for Eli Lilly and Company (NYSE:LLY), Gilead Sciences (NASDAQ:GILD), and Amgen (NASDAQ:AMGN).
Analysts note that Gilead's rating is supported by the potential of key assets like Lenacapavir for HIV prevention, and Amgen's rating is buoyed by expectations for its biosimilars, MariTide for obesity, and rare disease portfolio.
For Lilly, the rating comes amid a significant market opportunity in obesity treatments and the company's ability to leverage its cash flow from this segment to diversify and grow its portfolio.
“We believe LLY are set up & beginning to take actions to grow off the back of obesity with a diverse portfolio and “beat” the traditional reinvention cycle,” analysts said.
Bernstein has also categorized some companies under Market-Perform ratings, dividing them into two groups. Merck & Company Inc (NYSE:MRK) and AbbVie (NYSE:ABBV) are seen as having high potential but with more embedded risk than the consensus view.
Meanwhile, Bristol Myers (NYSE:BMY) Squibb Company, Pfizer (NYSE:PFE), and Moderna (NASDAQ:MRNA) are considered more challenged in the near to mid-term, with the firm adopting a wait-and-see approach regarding their ability to generate revenue growth from new or recently launched assets.