US Pharmaceuticals & Biotechnology_2025 Outlook_ Cautious on broader macro backdrop but more positive on fundamentals

Key Points Industry Overview 1. Cautious on Broader Macro Backdrop: The report expresses cautious optimism on the broader macroeconomic backdrop, citing lower interest rates, the Trump presidency, GLP-1 nervousness, and generalist exits as potential headwinds for the BioPharma sector. 2. Positive on Fundamentals: Despite the cautious macro outlook, the report remains optimistic on the fundamentals of the BioPharma sector, highlighting the potential for stock selection and product-driven catalysts. 3. Smid-Biotech Turnaround: The report notes a potential turnaround in sentiment for Smid-Biotech, driven by a more deal-friendly administration and the approaching major patent cliffs. Key Company Picks 1. Large Cap Pharma: - Eli Lilly (Buy; PT: $1,100)**: Top pick due to its leadership in GLP-1 and potential for oral GLP-1 orfoglipron to drive outperformance. - **Merck (Buy; PT:$120): Positive outlook following the valuation reset from Gardasil weakness, with upside potential from Keytruda, Winrevair, and Capvaxive. - BBIO (Buy; PT: $62)**: Unique diversified Smid cap biotech with three pivotal readouts expected in mid-late '25. - **SRPT (Buy; PT:$188): Potential for Elevidys DMD trajectory to beat expectations and LGMD to receive more credit. - VRTX (Buy; PT: $586)**: Poised for strong continued execution and growth from base CF business and increasing diversification across pain and pipeline. - **PTCT (Buy; PT:$71): Important catalysts from PKU PDUFA and Huntington's Disease program. - ARVN (Buy; PT: 74)**: Ph3 VERITAC-2 topline data for vepdegestrant in metastatic breast cancer could support significant upside. 2. **Smid Biotech & Spec Pharma**: - **UTHR (Buy; PT: 475): Upside potential from IPF read-outs in 2H25. - **NBIX (Buy; PT: $162)**: Crenessity ramp could indicate a multi-bn$ peak sales opportunity. - LEGN (Buy; PT: $65)**: Attractive valuation and potential upside from Carvykti. - **MRUS (Buy; PT:$72): Upside potential from peto+Keytruda update in head and neck cancer and further indication expansion in colorectal cancer. - IDYA (Buy; PT: $50)**: Multiple de-risking clinical updates from synthetic lethality programs in 2025. - **JANX (Buy; PT:$69): High M&A interests and upside from JANX008 clinical updates in EGFR+ solid tumor. Key Themes 1. Trump's Impact on BioPharma: The report discusses the potential impact of President-elect Trump's policies on the BioPharma sector, including drug pricing, FDA regulation, and healthcare reform. 2. Patent Cliff and M&A: The report highlights the impending patent cliff and the potential for increased M&A activity as companies seek to replenish their pipelines. 3. Biotech Survival of the Fittest: The report discusses the challenges facing Biotech companies, including regulatory/policy uncertainty, positioning, and M&A activity. 4. Commercial Biopharma Diversification: The report emphasizes the importance of diversification for commercial-stage biopharma companies, particularly those with core assets facing patent cliffs or terminal value decline. 5. IRA and Drug Pricing: The report discusses the potential impact of the Inflation Reduction Act (IRA) on drug pricing and Medicare Part D reform. Conclusion The report provides a comprehensive overview of the BioPharma sector, highlighting key themes, company picks, and potential risks and opportunities. The cautious macro outlook is offset by positive fundamentals and potential for stock selection and product-driven catalysts.