JP Morgan Shows Most Interest In Teva, Organon As Specialty Pharma Sector Exhibits Signs Of Stability

JP Morgan notes that while there’s a resurgence of interest and excitement in new product launches within the specialty group, including branded and complex generics/biosimilars, investors should be discerning about these opportunities.

The group’s core fundamentals have strengthened, buoyed by a more stable environment for generic and established brand pricing, which helps mitigate the usual erosion in base business prices.

However, growth in the overall sector remains modest, with most companies experiencing a top-line compound annual growth rate (CAGR) of 0-2%.

Additionally, valuations have recovered, with most stocks now trading near their historical averages.

JP Morgan writes that Teva Pharmaceutical Industries Ltd TEVA continues to be the primary focus among investors in the group, with sentiment growing more bullish.

The analyst maintains a Neutral rating, as the market seems to have fully accounted for the company’s branded pipeline. Additionally, JP Morgan is cautious about Teva’s U.S. generic business compared to market expectations.

The analyst has given Viatris Inc. VTRS a Neutral rating, citing its stable fundamentals and low valuation amidst uncertainties in business development.

Meanwhile, JP Morgan holds a more optimistic view, an Overweight rating on Perrigo Co plc PRGO, noting the potential for earnings per share (EPS) to rebound to the low-mid $3 range soon due to currently low market sentiment. With shares currently trading at a significantly lower price than other consumer sector peers, the analyst believes there is substantial potential for an increase in valuation multiples as the 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. Keeps Overweight rating.

JP Morgan is adjusting several ratings, which are relative to each other. The analyst has changed Amneal Pharmaceuticals, Inc AMRX to Neutral from Underweight and Organon & Co OGN to Underweight from Neutral.

For Amneal, the company’s success in launching new products suggests the potential for improved financial forecasts, which could bolster the stock.

Conversely, Organon’s stock price has increased 60% year-to-date. Although its valuation still appears low, the recent price surge suggests more attractive opportunities within the sector may exist.

Price Action: OGN stock is down 2.95% at $20.73, and AMRX stock is down 1.42% at $8.33 at last check Friday.

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