SocGen Picks New Favorites In Big Pharma

SocGen started coverage of six US large cap pharma stocks and picks Merck & Co., Inc. MRK as its favorite as it sees cancer franchises to drive upgrades for the company. The brokerage initiated coverage of Merck with a Buy rating, saying "We see scope for the group to surprise on the upside as Keytruda (cancer) should leapfrog Bristol-Myers Squibb Co BMY's Opdivo and become the market leader in Immunotherapy given its first mover advantage in several indications. In our view, this potential is not currently reflected in MRK's valuation." On BMY, SocGen started the coverage with a Sell rating saying, "in extrapolating Opdivo's existing first-mover advantages in skin, lung and kidney cancers to most other tumour types, the market is being irrationally exuberant. With the shares priced for perfection, if we are right about the denominator, the multiple contraction could be significant." The note said: "We commend management for prioritizing Business Development because Opdivo accounts for 99% of our sales CAGR (2016-21e) and with its upcoming small-molecule patent expiries BMY stands to lose 20% of sales between 2021 and 2024." SocGen also initiated coverage of Johnson & Johnson JNJ with a Hold rating. "Despite good visibility provided by the MedTech and Consumer divisions, in our view rejuvenation of the Pharma portfolio can only just offset the decline in the historical franchises. JNJ is essentially a slow-growth company with a stock valuation in line with the sector justified solely by good visibility." The brokerage initiated coverage of Eli Lilly and Co LLY with a Hold rating. The note said despite the promising pipeline which will more than offset the tail portfolio genericization, EPS growth will likely not accelerate before 2018, while market expectations on R&D are already high. In addition, SocGen started AbbVie Inc ABBV with a Sell rating, stating that despite assuming no meaningful biosimilar challenge until 2020, the consensus is too high due to inflated expectations for both the approved product portfolio and the late-stage pipeline. "The stock, which is trading at a deep discount to peers on most regression analyses, may on face value be one of the ‘cheapest' in the sector, but given the magnitude of the Humira overhang, we think this valuation is still at risk," the note added. Meanwhile, the brokerage reiterated its EU top picks and following are its views on various EU pharma stocks: AstraZeneca plc (ADR) AZN – "base business should drive upside surprises." Roche Holding Ltd. (ADR) RHHBY – "expect the legacy cancer franchises to outperform." Sanofi SA (ADR) SNY – "We expect the refocusing and simplification strategy to drive a gradual rerating." "We remain sellers of GlaxoSmithKline plc (ADR) GSK (too soon to play a recovery) and Novo Nordisk A/S (ADR)NVO (priced for more than perfection)," the brokerage added.