Investing.com -- European pharmaceutical stocks present varied opportunities according to Morgan Stanley’s latest analysis, with clear leaders emerging based on growth prospects, pipeline strength, and valuation metrics.
Morgan Stanley has identified several standout performers in the European pharmaceutical sector, highlighting companies with compelling growth trajectories and addressing key challenges facing others. Their analysis points to significant differentiation among major players.
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AstraZeneca Morgan Stanley views AstraZeneca as offering sector-leading earnings growth of 11% over FY’26-29, compared to 6% for peers. Their optimistic assessment of AstraZeneca’s pipeline suggests longer-term earnings potential exceeding current market expectations. The firm believes AstraZeneca’s 2026 guidance will likely reassure investors, with projected mid-single-digit sales growth and low double-digit EPS growth. Potential upside catalysts include Brinsupri royalties (over $1 billion to profit), faster Datroway rollout, and Calquence in finite CLL (approximately $1 billion peak sales). While acknowledging a challenging first half of 2026, Morgan Stanley sees a more attractive risk-reward profile emerging in the second half.
AstraZeneca announced that its new drug application for baxdrostat, a treatment for hard-to-control hypertension, has been accepted for priority review by the U.S. Food and Drug Administration (FDA). A decision on the application is expected in the second quarter of 2026.
Sanofi Sanofi continues to offer "growth at a reasonable price" according to Morgan Stanley. The firm notes a shift in focus from R&D execution to the company’s undemanding valuation relative to its strong earnings growth projection of 11% from 2026-29. Morgan Stanley expects Sanofi to guide conservatively for 2026, with mid-to-high single-digit sales growth and high single-digit EPS growth. Their forecast shows 7% year-over-year sales growth and 12% earnings growth for FY’26, with potential upside if anticipated tariff headwinds don’t materialize. Despite recent share price rebounds, the valuation remains attractive given the EPS momentum.
In recent developments, Sanofi reported that its Phase III trial for the atopic dermatitis treatment amlitelimab met its endpoints, but efficacy measures fell below some analyst expectations. Separately, the company’s Paris headquarters was searched as part of a French tax fraud investigation.
Bayer Morgan Stanley has upgraded Bayer to Overweight following the solicitor general’s recommendation to the Supreme Court to review the Durnell case in the glyphosate litigation. They see potential upside through further litigation de-risking in 2026, beginning with the Supreme Court’s decision on whether to accept the case, expected in January 2026. The firm also notes improving fundamentals with upside potential in Bayer’s Pharma business driven by momentum from Nubeqa and Kerendia. After earnings revisions stabilized in late 2024, Morgan Stanley anticipates positive revisions in 2026.
Bayer’s menopause drug, Lynkuet, received a recommendation for approval from the European Medicines Agency (EMA), moving it closer to market access in the EU. The company is also set to receive a €180 million sales-based milestone payment from its partner Orion for the drug Nubeqa.
GSK Despite recent rallies supported by a new CEO, stronger near-term earnings momentum, and attractive valuation, Morgan Stanley maintains an Underweight rating on GSK. While strong specialty medicines and improved product mix underpin FY’26 estimates of 5% sales growth and 7% operating profit growth, the firm identifies longer-term headwinds that could present mid-single-digit percentage downside risk to earnings. Their longer-term sales forecast sits below GSK’s guidance, projecting approximately £35 billion in FY’31 sales versus GSK’s guidance of over £40 billion.
GSK received U.S. Food and Drug Administration (FDA) approval for its multiple myeloma treatment Blenrep to return to the market, though with some restrictions. The company also announced it would discontinue studies of latozinemab for frontotemporal dementia after a clinical trial did not show a benefit on its clinical endpoint.
Roche Morgan Stanley expresses caution about Roche despite recent success for giredestrant in adjuvant breast cancer. They note the trial design suggests lidERA may only target approximately 20% of the early breast cancer population. The firm forecasts giredestrant peak sales of about $7 billion across adjuvant and metastatic disease but sees risk-reward skewed negatively ahead of upcoming data presentations. Trading at 15x FY’26 P/E (6% premium to peers) despite offering softer earnings growth over 2026-29 compared to peers (4% vs 8%), Morgan Stanley believes continued delivery is required to sustain momentum.
Analysts at Jefferies recently downgraded Roche to Underperform from Hold, citing concerns that the company’s valuation is at a premium compared to peers without sufficient growth prospects to justify it.
Novartis Morgan Stanley looks beyond Novartis’s unattractive short-term outlook (2% sales/0% EBIT growth in 2026), focusing instead on accelerating growth from H2’26 and projected 6% sales/8% EBIT CAGR for 2026-2029. They see upside potential from the Rhapsido (remibrutinib) launch in CSU in 2026, illustrating the drug’s potential exceeding $5 billion across indications. While acknowledging concerns about patent expirations from 2031, Morgan Stanley believes Novartis can overcome these challenges through business development and pipeline delivery.
Novartis entered into a collaboration with Monte Rosa Therapeutics to develop molecular glue degraders for immune-mediated diseases, which includes a $120 million upfront payment to Monte Rosa. Additionally, Deutsche Bank reiterated its Buy rating on the company following the announcement of a separate RNA deal.
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