The biopharmaceuticals stocks to own in 2024, according to BofA

Looking ahead to 2024, BofA believes biopharma remains attractive, with reasonable valuation and the resurgence of M&A demonstrating a more proactive stance towards filling patent cliffs. Furthermore, given the current macro backdrop, the firm is optimistic on the performance of the biopharma sector in 2024. Eli Lilly (LLY) and Merck (MRK) are BofA’s favorite biopharma names, while Gilead (GILD) is the firm’s top biotech pick.

2024 OUTLOOK: Bofa notes that 2023 was a roller coaster for the biopharma industry with quality growth names such as Eli Lilly and Vertex (VRTX) continuing to win, but COVID/commercial execution stories like Pfizer (PFE), Moderna (MRNA) and Bristol Myers (BMY) falling flat. Despite having a strong year for new product approvals and launches and a big uptick in M&A and licensing activities, both pharma and biotech underperformed the market, the firm noted.

Looking to 2024, the firm thinks valuation looks reasonable across pharma and biotech, with the resurgence of M&A demonstrating a more proactive stance towards filling patent cliffs. Importantly, given the current macro backdrop, BofA is optimistic on the performance of biopharma in 2024. Major innovation in very large therapeutic categories such as obesity, pain, and oncology is quite evident and should help orient generalist investors towards the sector, it adds.

Among SMiD caps, the firm continues to expect volatility with a positive bias to names that have commercial products/Phase 3 pipelines over pure platform technologies. This also likely the case when evaluating strategic attractiveness. Overall, BofA remains positive on the group in 2024 with a preference for higher growth names in Biopharma.

FAVORITE BIOPHARMA NAMES: The firm’s top biopharma picks for 2024 are Eli Lilly and Merck. BofA notes the former’s shares had another strong year, finishing up 59% in 2023 largely based on broad investor interest surrounding obesity/diabetes drugs. Given the outperformance as well as the multiple, investors are not surprisingly concerned about how sustainable current trends are, the firm acknowledges. However, it believes there are many elements to the Lilly story that remain highly differentiated with the Biopharma sector, including best-in-class growth, significant margin expansion, and high impact pipeline/portfolio opportunities.

On the other hand, and while Merck shares modestly lagged last given drug pricing policy concerns and deal digestion, BofA expects differentiated revenue growth, an exciting launch for sotatercept in pulmonary arterial hypertension, and multiple ADCs updates to keep investors engaged. The firm recognizes that Eli Lilly and Merk were its favorite pharma names in 2023, but it underscores the scarcity value of higher growth/higher quality names in an industry with policy risks and widespread loss of exclusivity events, or LOEs.

FAVORITE BIOTECH NAME: Although Gilead had strong commercial performance in HIV as well as hematology/oncology in 2023, worries about the competitive landscape for Gilead oncology portfolio as well as setbacks for magrolimab led to underperformance. That said, BofA thinks consensus growth expectations are beatable in 2024 and believes Gilead offers one of the better risk-reward profiles among large cap Biotech names.

SMID BIOTECH BASKET: The firm notes that here are many Smid caps in its coverage with meaningful 2024 events that confers significant optionality, especially given 2023 underperformance. BofA likes Amylyx (AMLX) risk/reward going into TUDCA-ALS data in January and PHOENIX readout in Q2, which should bolster investor sentiment on Relyvrio’s over $1.5B peak sales opportunity. The firm also sees multiple shots on goal for Neumora (NMRA) going into Johnson & Johnson’s (JNJ) aticaprant readout in mid-2024, KOSTAL-1 in the second half of the year, and Cerevel’s pivotal data also in the second half of 2024.

RATING CHANGES: BofA downgraded Bristol to Neutral from Buy with a price target of $60, down from $68, following mixed performance from new launches. Even assuming an impact from announced new deals for Mirati (MRTX), Karuna (KRTX) and Rayze (RYZB), the launch portfolio growth “looks more linear,” with the firm modeling growth from $3.7B, or 8% of 2023 total revenues, to $18B, or 35% of total revenues in 2027, the firm said.

BofA also downgraded Kymera (KYMR) to Neutral from Buy with a price target of $30, down from $45. While the firm remains “impressed with the pipeline de-risking thus far,” it argues that 2024 looks likely to be “more about validation of prior data versus many new data reveals” and looks to pivot focus to more actionable Smid biotechs in its coverage universe.

Lastly, BofA downgraded LianBio (LIAN) to Underperform from Buy with a price target of $3, down from $5, given what the firm sees as lower pipeline optionality and expectations for the pipeline to yield little data throughout 2024. It isn’t clear to BofA what the cash deployment picture looks like to preserve pipeline and portfolio optionality.

Meanwhile, the firm raised its price target on Neutral-rated Moderna and Buy-rated Neumora to $120 and $20 from $110 and $18, respectively, and lowered its price target on Buy-rated Crispr (CRSP) to $100 from $110.