Analysts pick winners as pharma sector bounces back on Clinton loss

The pharmaceuticals sector bounced back after Donald Trump won the battle to become the next president of the United States and the Republican party won control of Congress, with analysts suggesting AstraZeneca, Shire and Eli Lilly were among the best placed stocks to capitalise on the unfolding US political landscape.

Although a the results of the election had introduced uncertainty into the sector, substantial drug pricing reform now appears unlikely, JP Morgan said in a note on Wednesday.

Given the recent underperformance of the group over the perceived risk of a Hillary Clinton win, in light of her criticism of the pharma industry, JPM analysts said they believed the result "will begin to address the pricing overhang" on the sector.

Analysts at Jefferies said it expected pricing pressure and political reform to remain an overhang for the sector, "though a Trump victory may not be particularly negative for large cap pharma".

While Trump has given few details on his proposals for healthcare compared to Clinton, he has hinted at support for importation of drugs and more scrutiny over drug price increases, though his main focus seemed to be repeal of the Affordable Care Act.

"While the repealing Obamacare would theoretically be negative for large cap pharma, it is unlikely to be significant, in our view,"Jefferies said.

Its main picks in the sector included London-listed AstraZeneca, plus AbbVie, Eli Lilly and Novartis, a group which it said "can deliver upside regardless of the sector fundamentals, particularly given some of the potential headwinds have already become priced into the sector".

JP Morgan expressed a bias towards companies that were early in new product launch cycles as they offer "attractive top line and margin expansion opportunities and in our view are better insulated from pricing pressures".

Top picks that fitted the bill were Eli Lilly, Bristol-Myers Squibb and Allergan.

In its post election update, analysts at Exane BNP Paribas said Shire, Novo Nordisk, Roche, Merck would be 'relative winners', while Novartis would be a 'relative loser'.

In the medical technology subsector, Grifols was seen as a winner due to dollar effects and more limited risk on pricing, along with Biomerieux thanks to more costs than sales in dollars and its "resilient profile", and Fresenius due to relief on generic drug pricing worries. 'Losers' were seen as FMC, Qiagen and Essilor.