Goldman Sachs gives the US pharmaceutical industry a “buy” rating in favor of pharmaceutical companies such as LLY.US (LLY.US)

The Zhitong Finance App learned that Goldman Sachs released a research report indicating that the recent sell-off in the US pharmaceutical sector has created a convincing entry point. Goldman Sachs believes that as it further enters 2025 and beyond, the rise driven by fundamentals is the best. Goldman Sachs rated the US pharmaceutical industry as a “buy,” and gave Lilly (LLY.US), Johnson & Johnson (JNJ.US), and MSD (MRK.US) “buy” ratings, and gave ABBV.US (ABBV.US), Bristol-Myers Squibb (BMY.US), and PFE.US (PFE.US) “neutral” ratings.

In recent weeks, with the risk of a recession rising, changes in investor preferences have drawn attention to pharmaceutical companies' defensive capabilities. Even with the recent sell-off, the industry's performance at the beginning of the year still surpassed the S&P 500 index by about 9%, making it one of the best relative performers in the past 25 years. This background makes people pay more attention to the pharmaceutical companies' recession script; here, Goldman Sachs notes that if the historical pattern of the previous economic growth fear period is followed, this will mean that the industry's relative performance will be an additional 10% higher. Recent headlines from Washington, D.C., however, have highlighted growing policy uncertainty, and the wide spread of potential outcomes has led to differences in expressing some defensive claims at the level of a single stock. In the context of potential downsides associated with IRAs, earnings for the first quarter of '25 also showed some uncertainty, which has been difficult to quantify.

Although this has given us a difficult background to begin with, Goldman Sachs believes that the market sell-off has created a compelling entry point, and Goldman Sachs believes that a fundamental-driven rise is the best as we move further into 2025 and beyond. Goldman Sachs said its buy rating provides investors with an opportunity to take positions in US pharmaceutical companies based on key personal style preferences.

Goldman Sachs notes that in terms of growth, Eli Lilly is currently at an attractive level, is the industry's leading revenue grower, has no short-term patent cliffs, and its strategy can replicate the success of its fat franchises in other parts of its portfolio. In the near or medium term, Goldman Sachs believes the company is expected to strengthen its position in the anti-obesity drug (AOM) market. Goldman Sachs expects sales to grow at a compound annual rate of 28% in 2025-30, even if the TAM forecast is moderate. Within Goldman Sachs's global biopharmaceutical company ratings, no other market of this size is currently expected to grow at this rate. Overall, Goldman Sachs predicts Eli Lilly's AOM franchise will grow from $14.6 billion in 2024 to $43.3 billion in 2030, which is higher than Visible Alpha's consensus estimate.

Regarding its core business, Goldman Sachs emphasized that Johnson & Johnson is a stable, defensive growth company with the strongest balance sheet in the industry and can continue to make high-ROIC investments in innovative pharmaceuticals to increase revenue growth; as the company faces the Stelara patent cliff, Goldman Sachs is optimistic about Tremfya's growth and believes that consensus expectations underestimate the development trajectory of the biopharmaceutical business in multiple myeloma, EGFR NSCLC, and emerging new immunology product cycles.

As far as value is concerned, after the recent sell-off, the current trading level of MSD shares means that the market suggests an excessively negative final growth rate, which not only reflects zero business value, but also an almost free animal health business according to Goldman Sachs's anti-SOTP analysis. Given the business's revenue of around $6 billion in 2024, growing in the median/high single digits, Goldman Sachs believes this is a serious pricing error and believes that in the current market context, investors should use higher price-earnings ratio multiples for these types of stable revenue streams without policy-related risks. Furthermore, as the company began overcoming Gardasil's negative factors in China last summer and switched its focus to the execution of Winrevair (an important new product cycle) and data from the three ongoing Phase 3 trials of its oral PCSK9 program, people are increasingly interested in these trials, and Goldman Sachs saw conditions for a rebound in stock prices.