Four top picks in a battered sector
Donald Trump’s policies have weighed heavily on the pharmaceuticals sector, leaving valuations at a historic low. This City bank thinks the sell-off is overdone.
17th September 2025 15:07
by Graeme Evans from interactive investor
A premium multiple on AstraZeneca (LSE:AZN) shares is among the calls of a leading City bank after it reviewed a pharmaceuticals sector that’s been “under attack from all directions”.
Ongoing uncertainty on US policy and the end of obesity innovation upgrade momentum have left the industry’s valuation at a historic low point relative to the wider market.
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Berenberg adds that investor sentiment has never been so weak, a stance it believes is overdone.
The bank named AstraZeneca as one of its four sector top picks, alongside AbbVie Inc (NYSE:ABBV), the recently heavily sold Novo Nordisk AS ADR (NYSE:NVO) and Sanofi SA (EURONEXT:SAN).
On Astra, its forecast of high single-digit sales growth and superior research and development returns results in a price target of 14,200p. This is 25% higher than today’s level of 11,328p.
Berenberg said: “AstraZeneca has a strong management track record, excellent pipeline momentum and many more pipeline catalysts which could unlock further value. We believe a premium multiple is warranted.”
GSK (LSE:GSK) is one of seven Hold recommendations, with the others being Bristol-Myers Squibb Co (NYSE:BMY), Eli Lilly and Co (NYSE:LLY), Merck & Co Inc (NYSE:MRK), Novartis AG Registered Shares (SIX:NOVN), Pfizer Inc (NYSE:PFE) and Roche Holding AG (SIX:ROG).
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The 11 companies in Berenberg’s coverage have delivered 71% total shareholder returns over the past five years, with much of this driven by obesity drugmakers on the back of gains of 413% for Eli Lilly and 83% for Novo Nordisk.
Supply constraints and underwhelming CagriSema data have resulted in Novo Nordisk relinquishing a proportion of its gains over the past two years.
AbbVie has been the second-best performer at 182%, having cleared the biggest patent expiry ever with a superior replacement franchise and diversification from its Allergan acquisition.
AstraZeneca posted growth of 44% and GSK 21%, while total shareholder returns have been negative at Pfizer, Roche and Bristol-Myers as Berenberg said these companies faced pipeline productivity issues or suffered from a lack of replacement power.
Berenberg adds that the industry has been under attack from all directions, including tariffs and the most favoured nation policy requiring the US to pay no more than prices in comparable countries.
It also highlighted vaccine safety and a disrupted Food and Drug Administration (FDA): “Investor sentiment towards the pharma sector has never been so low and is overdone, in our view.”
Looking forward to the next round of FDA approvals, Berenberg expects oncology and autoimmune therapeutic categories to dominate and potentially lift the sector average R&D return to 11%.
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The bank said it favours companies with the best replacement power, driven by R&D returns forecast to be ahead of cost of capital or that are improving versus history.
On Novo Nordisk, Berenberg expects the Ozempic and Wegovy maker to remain a major player in the $100 billion (£73.2 billion) global obesity market.
It adds: “We have seen a significant reset in market expectations, allowing for a more constructive debate on growth outlook, catalysts and valuation. While some hurdles remain, we also see opportunities for the new CEO to seize, and to surprise on the upside.”
Berenberg said Sanofi’s projected top-line growth to 2030 “is one of the best on offer”, driven by the strong performance of Dupixent and supported by a diverse portfolio of rare disease and vaccine assets.
With a clear runway and significant cash to deploy, the bank adds that AbbVie shares warrant a premium multiple relative to peers.
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