Barclay's Biopharmaceuticals Blueprint For 2016

• Geoff Meacham of Barclays initiated coverage of six names within the "newly combined" U.S. Biopharmaceuticals sector.
• Meacham noted he is "positive" on the fundamentals and the "pipeline-driven evolution into a more specialty therapeutic areas."
• However, the analyst cautioned that the political backdrop will create uncertainty in 2016.

The analyst holds a "positive" view on the sector based on: 1) fundamentals, and 2) the "pipeline-driven evolution into more specialty therapeutic areas" that have "blurred" the lines between biotech and pharma.

Meacham continued that major pharmaceutical companies are trading at 18x 2016 estimates (versus 16x for the S&P 500) which is "still attractive" given multiple commercial and clinical catalysts ahead in 2016.

He added that while recent pharma M&A activity has been "effective" at creating cost savings, the transactions haven't created much value. As such, the analyst prefers names with pipeline-centric acquisitions over financial engineering. Specifically, Johnson & Johnson JNJ, Eli Lilly and Co LLY, and Merck & Co., Inc. MRK are three companies that could "step up the pace" of pipeline deals.

Related Link: Pfizer Is At A 'Strategic Crossroads'

Meacham did caution investors that the political backdrop creates uncertainty in 2016, Specifically, the "political scrutiny of drug pricing." With that said, the analyst suggested this event will play out as "election season rhetoric" rather than a "push" towards any structural changes.

Coverage Initiation

Shares of AbbVie Inc ABBV were initiated with an Equal-Weight rating and $72 price target as the analyst is less enthusiastic on the company's 2020 guidance, specifically on hep C and oncology which could "limit outperformance."

Shares of Bristol-Myers Squibb Co BMY were initiated with an Equal-Weight rating and $70 price target as a "clearer" 1L NSCLC combo outlook and next-gen I-O data is needed to sustain the shares current valuation.

Shares of Johnson & Johnson were initiated with an Overweight rating and $115 price target as 2017 could be a "strong year" and the company could be active on the M&A front to "boost" its pipeline in rare/orphan diseases or oncology.

Related Link: J&J's 'Steady Cash Flow Is Key,' Barclays Upgrades To Overweight

Shares of Eli Lilly were initiated with an Overweight rating and $95 price target as continued outperformance depends on "good execution" for Cyramza and Jardiance – which "seems likely."

Shares of Merck were initiated with an Overweight rating and $66 price target as the current valuation implies its pipeline is "essentially free" at current levels.

Shares of Pfizer were initiated with an Equal-Weight rating and $34 price target as shares could have a superior return profile following a "major" restructuring, more focused R&D, and buying pipeline assets ahead of the Enbrel, Viagra, and Lyrica LOEs.