Credit Suisse Offers 2016 U.S. Large-Cap Pharma Outlook

• Vamil Divan of Credit Suisse offered his 2016 outlook for large-cap U.S. pharmaceuticals.
• Divan noted that sector-wide challenges seen in 2015 will remain and limit the sector's ability to outperform in 2016.
• The analyst named Eli Lilly and Co (NYSE: LLY), Pfizer Inc. (NYSE: PFE) and Bristol-Myers Squibb Co (NYSE: BMY) as his most preferred picks.

The pharmaceutical sector has been very volatile throughout 2015, and Vamil Divan of Credit Suisse is expecting the sector-wide challenges to remain in the coming year.

In a sector-wide outlook, Divan suggested that the large-cap pharmaceutical space is unlikely to outperform in the coming year. Nevertheless, there will be winners in the space (and losers) and those successes will likely be determined by the outcome of a handful of key data releases – as has been the norm for the past few years.

"Positive product news as well as continued M&A/business development may provide opportunities for upside, although we believe this may be balanced out by fewer impactful pipeline readings in 1H 2016 and increasing payer pressure and public debates around drug prices through the US Presidential Election cycle," Divan commented.

Top Picks

Heading into 2016, Divan prefers owning Eli Lilly given near-term momentum in Jardiance and a "relatively de-risked" product pipeline over the longer term. The analyst added that Pfizer's acquisition of Allergan would warrant a higher multiple as investor confidence surrounding the deal improves.

Finally, Bristol-Myers immuno-oncology segment is likely to see an uptick, along with a strong uptake of Opdivo use in lung cancer treatments and the release of novel I-O combo data expected throughout 2016.

Related Link: Major Pharma Group Outlook In 2016: Fundamentals To Outweigh Political Headwinds

Neutral Names

Divan stated that he has become "more constructive" on Johnson & Johnson (NYSE: JNJ), as the company's 2015 headwinds "fade" and the company's focus turns more to potential upside from its Darzalex launch and pipeline data release. However, with shares hovering near $105, there is "more reasons for excitement" around his top picks names.

The analyst added that Merck & Co., Inc. (NYSE: MRK) remains his "least preferred" large-cap name, as any growth from Keytruda/I-O and hepatitis C will be offset by "pressure" on Remicade and Januvia.

Image Credit: By CDC [Public domain], via Wikimedia Commons