Bernstein concluded that pan-European biopharma continues to serve as a go-to defensive sector even after a recent re-rating, citing a combination of steady earnings expansion, strong cash generation and valuations that, in the broker's view, do not fully capture underlying fundamentals.
In initiating coverage of large-cap companies, the firm assigned Novo Nordisk an Underperform rating, pointing to risks from U.S. competition in the obesity drug market, mounting pricing pressure and potential margin compression. Sanofi received an Outperform rating on expectations for stronger growth and management-led value creation. Novartis and Merck KGaA were each given Market Perform ratings, with Bernstein seeing limited upside and anticipating earnings pressure for both.
Among the large caps, Bernstein named AstraZeneca and GSK as its preferred picks, noting room for earnings upgrades and forecasts of sustained growth. In the specialty segment, argenx was singled out as the top pick on the back of multiple near-term catalysts. By contrast, Genmab was rated Underperform because the company will need to pursue acquisitions to mitigate the impact of upcoming patent expiries.
The brokerage flagged a number of clinical milestones to watch this year, including late-stage readouts associated with AstraZeneca, Novartis, GSK and argenx. These events are viewed as potential material developments for individual company outlooks and investor sentiment.
On the sector outlook, Bernstein forecasts roughly 8% annual EPS growth between 2025 and 2030. The firm attributes this to stable revenue trends, disciplined cost management and lower leverage across the industry. Demand drivers cited include aging populations and ongoing drug innovation aimed at unmet medical needs.
Bernstein also estimated that the sector could produce about $700 billion in cash between 2026 and 2031. That cash is expected to give companies flexibility to fund research and development, pursue targetted acquisitions and maintain dividend growth at or above inflation.
Despite the sector trading currently in line with the broader European market - rather than at its historical premium - Bernstein identified potential catalysts that could prompt a re-rating. Those include improved pipeline execution, better sentiment around U.S. drug pricing and developments related to global economic growth.
Finally, the firm noted that artificial intelligence may eventually enhance drug development and expand diagnostic capabilities, but it expects substantial financial benefits from AI to materialize over the next decade rather than immediately.