Barclays Adopts Cautious Stance on European Pharma for 2027, Citing Weaker Pipeline

Barclays has adopted a more cautious outlook for the European pharmaceuticals, biotechnology, and life sciences sector heading into 2027, citing a weaker drug development pipeline and slowing growth prospects. In a note to clients, the bank maintained its overall Neutral rating on the sector but moved away from its previously positive bias.

A Weaker Outlook for 2027

Analysts led by James Gordon pointed to several factors driving the more guarded stance. The primary concern is diminished late-stage pipeline potential, which Barclays estimates will fall to approximately $50 billion in 2027, a significant decrease from an estimated $75 billion in 2026.

The bank also forecasts a slight deceleration in top-line growth for the sector, projecting 7% growth in local currency for 2027, down from 8% in 2026. Furthermore, the report highlights that the industry is moving closer to major patent expiries, with about $70 billion in revenue at risk in 2031 and another $50 billion in 2032. Despite these headwinds, Barclays noted the sector's large-cap forward price-to-earnings ratio remains at 15 times, which it does not consider a market premium.

Shifting Stock Preferences

Given the expected slowdown for large-cap companies, Barclays analysts now favor biotech, mid-cap, and specialty pharma stocks. They also anticipate that life sciences companies will outperform on a relative basis, with growth forecast to be 2 percentage points faster in 2027 than in 2026.

Ad

Barclays' top picks reflect this strategic shift:

• Large-Cap: The bank is Overweight on AstraZeneca, due to its 2027 pipeline and re-rating potential, and Roche, for its long-duration growth. It is Underweight on GSK, citing a quiet 2027 and proximity to its HIV drug's loss of exclusivity.
• Biotech: Genmab and Argenx are rated Overweight for their pipeline potential and high growth, respectively.
• Mid-Cap/Specialty: Bayer, Galderma, and Grifols are favored with Overweight ratings.
• Life Sciences: Lonza, Sartorius, and Sartorius Stedim Biotech are rated Overweight.

Key Rating Changes

Alongside its sector analysis, Barclays announced several rating changes. Ipsen was downgraded to Underweight from Equal Weight on concerns over generic competition and margin pressure, causing its stock to fall more than 4% in European trading. Conversely, Hikma Pharmaceuticals was upgraded to Equal Weight from Underweight, and its shares rose 1.4%.

Zealand Pharma was also downgraded to Equal Weight from Overweight. The bank's note included updated forecasts and price targets across its 28-stock coverage universe in the European healthcare sector.