As we delve into the upcoming Q3 earnings season for biopharmaceutical companies, Bank of America has expressed an optimistic view on Eli Lilly (NYSE: LLY) and Gilead (NASDAQ: GILD), while raising concerns about Pfizer (NYSE: PFE) and Regeneron (NASDAQ: REGN) – two pandemic-era favorites.
The healthcare sector has experienced a significant shift with the decrease in pandemic-related emergencies. Consequently, biotech and pharma stocks have underperformed the broader market this year, as illustrated in the graph below:
While makers of COVID-19 products like Pfizer and Regeneron have faced a decline in revenue due to the end of the pandemic boom, investors have turned their attention to obesity drug developers Novo Nordisk and Eli Lilly. As the earnings season unfolds, Bank of America attributes the overall underperformance of the biopharma sector so far this year to sector rotation. It suggests that the market anticipates a “soft landing” in light of improving macroeconomic conditions.
Bank of America analyst Geoff Meacham emphasizes the importance of commercial execution and focuses on the changes introduced by the Biden Administration’s Inflation Reduction Act (IRA). While macro risks remain a consideration, Meacham suggests that the spotlight will primarily be on how companies navigate the current landscape.
Looking specifically at the Q3 earnings expectations, Eli Lilly and Gilead Sciences are predicted to benefit from strong demand for their respective products. Eli Lilly is well-positioned in the diabetes and weight loss market, while Gilead’s expertise lies in the HIV space.
Bank of America reaffirms its Buy ratings for Eli Lilly and Gilead Sciences in a recent research note, expressing confidence in above-consensus Q3 sales estimates. The price targets for the companies remain at $700 and $95, respectively.
Although, Bank of America is less convinced about Pfizer and Regeneron. Due to uncertainty in the demand for their COVID-19 products, the firm expects below-consensus Q3 sales figures for both companies. Consequently, it issues a Neutral rating for Pfizer, with a $45 per share target, and maintains an Underperform rating for Regeneron, with a $680 per share target.
Pfizer recently revised its 2023 revenue outlook downwards by $9 billion, reflecting lower-than-anticipated sales of its pandemic-era products, notably its COVID pill, Paxlovid. Meanwhile, despite the recent FDA approval of a high-dose version of its blockbuster eye therapy, Eylea, Regeneron is experiencing pressure on its Eylea franchise in the US.