Barclays Sees Upside in US Biopharma Industry

The investment research arm of Barclays (NYSE:BCS,LSE:BARC) is not worried about drug pricing concerns in the US; instead, it has a positive outlook for the country’s biopharma industry.

On Wednesday (February 26), Barclays Capital launched its coverage of the US biopharma space with a list of stock recommendations and impressions on the market.

The list of companies it will cover includes both big names and smaller-cap stocks.

In a note, analyst Carter Gould said the bright outlook comes mostly from a decrease in short-term worries about changes in drug pricing policies in America.

US lawmakers are pursuing various methods of bringing down the cost of medicine for patients, since the current price structure for many drugs is “unreasonable,” according to Gould’s note.

Even US President Donald Trump has weighed in on the discussion, going as far as suggesting importing drugs from Canada or implementing an international pricing index.

“(This critical event could) prove to be the biggest major shock to multinational drugmakers’ revenues,” Beau Noafshar, senior industry analyst for pharmaceuticals and healthcare at international business research firm Fitch Solutions, said during a recent webinar.

Although concern about the enforcement of drug pricing policies is growing, many experts agree that this will likely not affect operations in 2020. However, it may affect the performance of the capital markets.

“The unpredictability of stock markets and other macro-economic issues mean it is hard to predict how the financial health of the sector might change,” a report from research firm Vantage indicates. “Events from outside the sector can quickly shift sentiment towards the high-risk drug development industry.”

Besides his opinion on the drug pricing conversation, Gould is also encouraged about biopharma in the US due to “evidence of strong innovation, an accommodating regulatory landscape, and modestly attractive valuations relative to the broader market.”

The analyst said the names Barclays Capital selected for “overweight” ratings lean more towards tried-and-true large corporations with significant market shares. As mentioned, the firm will also track smaller-cap stocks with “near-launch narratives and pipeline optionality.”

What is the outlook for biopharma?

While Gould views the entirety of 2019 as a strong year for the biopharma sector, both biotech and pharma underperformed compared to the general markets at large.

“For 2020, while we’re positive on the group as a whole, we think investors will need to adopt a stock-picking mentality,” he said in his note. According to the analyst, all these companies have different levels of exposure to the impact of potential pricing reform in the country.

When it comes to the place of biopharma on the grand stage of the capital markets, the researcher expects to see the industry reach a spot in the middle of the pack by 2021, alongside sectors like real estate and the industrials market.

Gould argued that, while drug price growth dropped significantly in 2018 and 2019, the debate about the cost of medicine will remain at center stage leading up to the presidential election in the US.

Here’s a list of all the companies Barclays Capital will cover as part of this new US focus:

• AbbVie (NYSE:ABBV)
• Alector (NASDAQ:ALEC)
• Allakos (NASDAQ:ALLK)
• Amgen (NASDAQ:AMGN)
• Applied Therapeutics (NASDAQ:APLT)
• Biogen (NASDAQ:BIIB)
• Bristol-Myers Squibb (NYSE:BMY)
• Gilead Sciences (NASDAQ:GILD)
• Gossamer (NASDAQ:GOSS)
• Eli Lilly & Co. (NYSE:LLY)
• Merck (NYSE:MRK)
• Molecular Templates (NASDAQ:MTEM)
• Neurocrine Biosciences (NASDAQ:NBIX)
• Pfizer (NYSE:PFE)
• Regeneron Pharmaceuticals (NASDAQ:REGN)
• Acceleron Pharma (NASDAQ:XLRN)

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.