Why Jefferies Upgraded Bristol-Myers, Cut Merck

Jefferies analyst Jeffrey Holford and aren’t feeling too upbeat about pharmaceutical stocks in 2017, noting that politics, as well as pharmacy benefit managers, could put downward pressure on pricing. Then there are the weakening fundamentals. As a result, they cut their rating Merck (MRK) to Underperform from Hold…

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We expect a strong 2017 performance from Keytruda in NSCLC, though revenue and EPS estimates are now 2%-7% and 5%-12% below consensus between 2017E-20E. We also expect further pressure on Keytruda in 2018, driven by share losses in first-line non-small cell lung cancer to Bristol-Myers Squibb (BMY), AstraZeneca (AZN) and Roche (RHHBY) as well as an increasing overhang from the Januvia/ Janumet patent expiries as they loom ever closer. Merck screens poorly on many valuation metrics to us and we have downgraded the shares to Underperform.

…but upgraded Bristol-Myers Squibb to Buy from Hold:

We expectBristol-Myers Squibb to share the CTLA-4 combo IO opportunity innon-small cell lung cancer with AstraZeneca, with key data from CM-568 and CM-227 securing its future in 2017. On this basis we see the PEG of 1.2 against the sector average of 1.9 as attractive and have upgraded the shares to Buy as a result.

Shares ofBristol-Myers Squibb have gained 1.6% to $59.57 at 1:54 p.m. today, while Merck has fallen 2.2% to $61.10. AstraZeneca has dropped 2.7% to $27.11, and Roche has advanced 0.2% to $28.40.


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