Large cap biopharma offers defense in macro storm – Credit Suisse
Oleg Elkov

Citing historical performance and fundamentals, Credit Suisse identified U.S. large-cap biopharma as an attractive defensive pocket amid lingering macro risks. Initiating coverage on seven U.S. large-cap pharma stocks with four Outperform ratings, the analysts Trung Huynh and Carson Wong built their thesis using the firmâs proprietary industry database and claims data from over 120M Americans.
âWith the macro backdrop uncertainty unlikely to resolve over the next few months, we see Large-Cap BioPharma as a key sector to own for defensive exposure at a reasonable price,â the duo wrote in a research note on Thursday.
With the Zantac legal liability risk clouding the EU pharma giants Sanofi (SNY) and GSK (GSK), the analysts favor their U.S. counterparts noting the latter has outperformed during past macro volatility and benefitted from a rising greenback given USD-dominated sales and profits.
Additionally, the analysts note that while pharmaâs high margins can withstand inflation, its long-term growth drivers, high dividends, and robust balance sheets remain intact. However, Huynh and Wong argue that despite offering higher earnings per share growth, the subsectorâs forward PE remains attractive relative to other defensive sectors. 
Commenting on drug pricing, the duo notes that the concerns triggered by the enactment of the 2022 Inflation Reduction Act in the U.S. are overblown, and the impact of patent expiry beyond 2025 remains unclear.
Taking a deeper dive into the industry, the analysts select stocks with âhigher short- to mid-term growth and companies that can affect meaningful change through pipeline success, product execution, and impactful M&A.â
Credit Suisse issues Outperform ratings on Merck (MRK) and AbbVie (ABBV), naming the stocks as its Top Ideas based on their underappreciated future catalysts and relatively low valuation. 
While Merck (MRK) is highly reliant on cancer drug Keytruda, the concerns over its loss of exclusivity in 2028-end are overdone, the analysts noted, estimating a 12-month price target of $120 and naming the stock as its Top Growth Pick.
AbbVie (ABBV) is the firmâs Value Pick. With a $170 per share target, the analysts looked past its Humira patent cliff next year, pointing out that the company offers the highest dividend yield among peers, while its ex-Humira five-year CAGR trails only that of Eli Lilly (LLY).
Despite having industry-leading growth, Lilly (LLY) faces a binary event in 2H 2023 with Phase 3 data expected for its Alzheimerâs candidate Donanemab the analysts contend. However, they issue an Outperform rating and $395 target for the company noting an attractive risk/reward setup ahead of the readout and citing its potential in the obesity market thanks to diabetes therapy Mounjaro.
While its fortunes are closely tied to the COVID-19 vaccine, the future utility of which remains uncertain, Pfizer (NYSE:PFE) offers solid growth prospects even without the blockbuster shot it co-developed with BioNTech (BNTX), the analysts wrote.
Pfizer (PFE) has lost ~15% this year, and Credit Suisse points to the companyâs attractive valuation. Issuing an Outperform rating and $55 target, the analysts cite the underappreciated potential of its pipeline assets, including the respiratory syncytial virus (RSV) vaccine and mRNA-based flu shot.
In August, the New York-based pharma giant said it would seek regulatory approval for the RSV vaccine candidate RSVpreF in the coming months. The company has also started dosing in a Phase 3 trial for its quadrivalent mRNA-based flu vaccine candidate and a Phase 1 trial for a combination vaccine targeting COVID and flu based on the same technology.
In coverage initiation, Credit Suisse has issued Neutral ratings on Bristol-Myers Squibb (BMY) and Johnson & Johnson (JNJ), which have traded flat over the past six months, as shown in this graph.

With $78 and $170 per share price targets for the companies, respectively, the team notes their soft growth trajectory and flags concerns over the impending loss of exclusivity for some of the key revenue generators.
However, the analysts slapped Amgen (AMGN) with an Underperform rating and $240 per share target, citing its recent share price rally and overly optimistic long-term forecasts for KRAS G12C inhibitor Lumakras which was granted FDA approval in 2021 for lung cancer.

Amgen (AMGN) has outperformed rivals with a ~14% gain over the past three months as Wall Street cheered its early-stage weight loss therapy AMG133.