Monday saw Bernstein analysts highlighting Eli Lilly and Company (NYSE:LLY) as their top pick in the U.S. biopharma sector for 2025. The endorsement follows a challenging year for the sector, with Lilly's stock outperforming the S&P 500, rising 32% compared to the S&P's 23% gain. Despite the overall biopharma sector only seeing a 3% increase by the end of the year, Bernstein expects certain themes to shape the industry's trajectory in 2025.
The analysts anticipate that the political environment will continue to impose an uncertainty penalty on most biopharma stocks, but they also foresee a possibility of a more favorable mergers and acquisitions (M&A) climate under the new administration. Pricing concerns are expected to lessen, yet global pricing pressures are likely to persist. Additionally, the potential reform of Pharmacy Benefit Managers (PBMs) could significantly disrupt the sector.
In terms of drug categories, GLP1s are projected to be a focal point, with Eli Lilly consolidating its leadership position as demand grows and next-generation drugs offer improved efficacy and convenience. PD1 inhibitors, particularly Merck (NS:PROR)'s Keytruda, are set to remain major revenue drivers, although the industry is shifting its focus towards lifecycle management and preparing for upcoming patent expiries.
Analysts note that the impending wave of patent expirations is poised to double the revenue at risk compared to the past decade, a challenge that many companies have yet to fully address. They expect Merck (NYSE:MRK) to actively seek significant late-stage acquisitions to bolster its portfolio ahead of Keytruda's patent expiry, while Lilly is likely to continue targeting early-stage clinical or discovery opportunities.
For Eli Lilly, the optimism stems from the potential of orforglipron, a treatment expected to expand the total addressable market and introduce a new treatment paradigm. This, along with Lilly's valuation and leadership status, solidifies its position as Bernstein's preferred stock in the sector.
The outlook for Bristol Myers Squibb (NYSE:NYSE:BMY) and Merck remains cautious, with the performance of BMY's Cobenfy launch and MRK's strategic acquisitions being critical factors to watch in the coming year. For deeper insights into the biopharma sector's dynamics and comprehensive analysis of over 1,400 US stocks, including detailed valuation metrics and expert research reports, visit InvestingPro.
In other recent news, Moderna (NASDAQ:MRNA) and Novavax (NASDAQ:NVAX) have seen advances in premarket trading due to an increase in seasonal flu cases across the country. The FDA has directed GSK and Pfizer (NYSE:PFE) to include warnings about a rare neurological side effect for their vaccines Arexvy and Abrysvo. TD Cowen has raised concerns about the future of the global pharmaceutical industry due to U.S. tariffs and geopolitical tensions. Pfizer has decided to terminate its global collaboration and license agreement with Sangamo, which has led to a decrease in Sangamo's shares.
Pfizer has also received FDA approval for BRAFTOVI® in combination with cetuximab and mFOLFOX6 for the treatment of metastatic colorectal cancer with a BRAF V600E mutation. This approval is based on results from the Phase 3 BREAKWATER trial. Meanwhile, Pfizer has adjusted its growth projections and financial outlook, which has led to various responses from Truist Securities, Goldman Sachs (NYSE:GS), Guggenheim, and Leerink Partners.
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