The UK’s two big drugmakers came under the spotlight in Berenberg’s latest review of the pharmaceuticals sector.
AstraZeneca PLC (LSE:AZN) gets a clear thumbs-up with a 'buy' rating and price target of £142, implying around 24% upside from £114. GSK PLC (LSE:GSK, NYSE:GSK), by contrast, is stuck on 'hold' with a £16 target, only 8% ahead of today’s £14.79.
AstraZeneca has plenty going for it. Analysts see high single-digit sales growth, supported by a pipeline rich in oncology and immunology drugs.
Management has a track record of delivering on R&D promises, and Berenberg thinks investors should pay a premium multiple for that. Its “return on R&D investment” is already forecast to be comfortably above the cost of capital, a rare feat in an industry where many pipelines fail to deliver.
GSK, on the other hand, remains more of a plodder. The business throws off cash and pays a healthy 4% dividend yield, but pipeline depth and financial firepower are both limited compared with peers.
With less scope for upside surprises and valuations already reflecting the steady profile, the bank sees little to get excited about.
Beyond the UK names, the team casts its net wider. AbbVie earns a 'buy' rating and a $270 target as it powers through the loss of Humira, the world’s biggest-selling drug, with replacements Skyrizi and Rinvoq, plus bolt-ons from Allergan.
Sanofi also makes the 'buy' list at €110 a share, underpinned by its blockbuster Dupixent and a broad vaccines and rare disease portfolio. Novo Nordisk, back in favour after a brutal reset in expectations, is tipped to remain a heavyweight in the $100 billion obesity market.
Not all the big beasts shine. Eli Lilly, despite its 400% share price rise over five years, is only a Hold now with the obesity boom fully priced in.
The same goes for Merck, Novartis, Roche and Pfizer, all marked as 'hold'. Total shareholder returns for the group over five years sit at 71%, but the spoils are uneven: Lilly up more than fourfold, Novo 83% higher, while Pfizer and Roche are down.
Valuations across the sector look cheap on paper. The group trades on about 12.5 times 2026 earnings, an all-time low relative to the wider market. Political risk explains a lot of the discount.
Drug pricing remains a live issue in the US, with both Republican and Democrat administrations pushing for reforms. Add in tariff threats, questions over vaccine safety and a more combative Food and Drug Administration, and investor sentiment is shot.
Yet the fundamentals are not broken. R&D returns have improved, led by obesity and immunology. The “class of 2020” pipeline is delivering a 14% return against an initial forecast of 8%. The “class of 2025” is pencilled in at 9%, with oncology and immunology drugs again set to dominate.
Cash piles of about $360 billion give the industry scope to buy growth through acquisitions if internal projects falter.
For investors, the message is selective optimism. AstraZeneca and AbbVie stand out for R&D momentum, Sanofi for durability, and Novo for sheer scale in obesity. GSK offers income but little growth.
With valuations at historic lows, picking the right names could matter more than ever.