PFE - HSBC bullish on Roche Lonza; bearish on Bristol-Myers GSK Moderna

2023-07-16 20:14:12 ET

UK-based HSBC initiated coverage of 19 major biopharma stocks this past week, labeling Roche ( OTCQX:RHHBY ) ( OTCQX:RHHBF ), Merck KGaA ( OTCPK:MKGAF ) ( OTCPK:MKKGY ) and Lonza ( OTCPK:LZAGY ) ( OTCPK:LZAGF ) as potential comeback stories, while slapping "reduce" ratings on Bristol-Myers Squibb ( NYSE: BMY ), GSK ( NYSE: GSK ) and Moderna ( NASDAQ: MRNA ).

HSBC gave shoutouts to several companies on its roster, including Swiss drugmaker Roche, which it rated a buy. The bank said that while some investors have questioned whether Roche's R&D engine was "broken" in the wake of three late-stage setbacks, such assumptions were an "oversimplification" and that the market might be looking for "a trend in the noise."

The bank also put Merck KGaA on its possible comeback list, noting the drugmaker has been weighed down by concerns about inventories and biotech spending. The bank said it believes such worries "detract the market from the structural growth story" of the company, adding that Merck stood to benefit from its move into biologics.

Like Merck, Lonza has also been plagued by concerns about biotech spending cuts. HSBC noted, however, that Lonza has "very targeted capex" and is positioned for faster growth and improved returns. Both Merck and Lonza were also started with buy ratings.

HBSC designated AstraZeneca ( AZN ), Novo Nordisk ( NVO ), Eli Lilly ( LLY ) and Genmab ( GMAB ) as its "quality growth" picks, citing the drugmakers' relatively low exposure to loss of market exclusivity for key drugs and "sensible levels" of R&D investment, all of which make them more attractive to potential M&A targets.

The bank said it picked AstraZeneca for its diversified portfolio in immuno-oncology and rare diseases, coupled with a desire to be a leader in the treatment of non-small cell lung cancer. "AZN offers growth at a reasonable price," HSBC added.

Novo and Lilly were praised for their leading positions in the diabetes/obesity treatment market, while Genmab was highlighted for its "best in class" antibody technology platform. HBSC added that it sees Genmab potentially evolving into a large biopharma if it "manages to stay independent."

Pfizer ( PFE ), meanwhile, was labeled a "value" stock. HSBC said that despite facing a significant patent cliff, Pfizer's planned acquisition of Seagen ( SGEN ) puts it in a "comfortable position where it can show capital discipline for future deals." HSBC added that it thought Pfizer was acquiring Seagen at a "fair value."

HSBC's least favorite Big Pharma stocks were Bristol-Myers Squibb, GSK, Moderna and Bayer, all of which it initiated with "reduce" ratings. Significant exposure to loss of market exclusivity, or LOE,  was cited as a key reason for the ratings.

Bristol-Myers, the bank said, was facing "meaningful" revenue decline due to its relatively high exposure to both LOE and price negotiations under the US Inflation Reduction Act. As for GSK, HSBC said the drugmaker's combination of LOE exposure, "complicated" accounting and Zantac litigation risks "does not make for a good value story."

HSBC also gave a thumbs down on Moderna, citing possible further downside risk to the company's COVID-19 vaccine revenue estimates.

More on Big Pharma stocks:

• Roivant reportedly could sell colitis drug to Roche for over $7B
• Eli Lilly, Merck among top pharma picks in Barclays Q2 preview
• Seagen, Pfizer get second info request from FTC on $43B merger deal
• Goldman Sachs sees rays of hope in underperforming health sector

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