JP Morgan is taking a closer look at the Specialty Pharmaceuticals sector, noting a renewed interest in new product launches, including branded and complex generics/biosimilars. However, they advise investors to be selective when considering these opportunities.
The group’s core fundamentals have strengthened thanks to a more stable environment for generic and established brand pricing. This helps offset the typical erosion in base business prices. Nonetheless, growth within the sector remains modest, with most companies experiencing a compound annual growth rate (CAGR) of 0-2% in their top line. Additionally, valuations have recovered, and most stocks are now trading near their historical averages.
JP Morgan highlights Teva Pharmaceutical Industries Ltd (TEVA) as a primary focus among investors in the group, with sentiment leaning increasingly bullish. However, the analyst maintains a Neutral rating, believing the market has fully incorporated the company’s branded pipeline. They also express caution regarding Teva’s U.S. generic business compared to market expectations.
The analyst assigned a Neutral rating to Viatris Inc. (VTRS), citing its stable fundamentals and low valuation despite uncertainties in business development. JP Morgan holds a more optimistic view, assigning an Overweight rating to Perrigo Co plc (PRGO). They anticipate earnings per share (EPS) to rebound to the low-mid $3 range soon due to current low market sentiment. With shares trading significantly lower than other consumer sector peers, the analyst believes there’s potential for a substantial increase in valuation multiples as recovery progresses.
Similarly, positive prospects are seen for Amphastar Pharmaceuticals, Inc. (AMPH), where the analyst anticipates a promising series of catalysts leading into 2024/2025, keeping an Overweight rating.
JP Morgan has adjusted several ratings, which are relative to each other. They have changed Amneal Pharmaceuticals, Inc (AMRX) to Neutral from Underweight and Organon & Co (OGN) to Underweight from Neutral. Amneal’s success in launching new products suggests potential for improved financial forecasts, potentially boosting the stock. Conversely, Organon’s stock price has increased by 60% year-to-date. While its valuation still appears low, the recent price surge suggests more attractive opportunities may exist within the sector.
It’s important to note that this information is for general knowledge and does not constitute financial advice.
