Eli Lilly, Merck and Johnson & Johnson gain on strong pharma outlook

The pharmaceutical sector is showing renewed strength as leading drugmakers push forward with breakthrough therapies, expansion plans and strategic portfolio moves. Analysts say innovation and diversification are driving optimism for the industry’s next growth phase.

BNN Bloomberg spoke with Sel Hardy, senior equity research analyst at CFRA. She highlighted Eli Lilly, Merck and Johnson & Johnson as her top picks, citing strong drug pipelines, rising global demand and resilient earnings across the sector.

Key Takeaways

• Eli Lilly rated “buy” with a US$964 target, driven by strong GLP-1 drug sales and a promising oral obesity pill in development.
• Alzheimer’s treatment approvals in Japan, Britain, China and the EU expected to boost Eli Lilly’s near-term growth.
• Merck’s Keytruda remains dominant, while animal health and cardiopulmonary drugs add diversification.
• Johnson & Johnson’s orthopedics spin-off and acquisitions support long-term portfolio optimization.
• Analysts expect sustained pharma sector growth through 2026, supported by innovation and demographic trends.

Read the full transcript below:

ROGER: Time now for our Hot Picks. Our next guest is focusing on the pharma sector, and here to give us her stock picks is Sel Hardy, senior equity research analyst at CFRA. Sel, thanks for joining us.

SEL: Thank you for having me.

ROGER: All right, first up, let’s get right into this. Eli Lilly — you’re liking it right now. What’s so appealing?

SEL: Yes, so we have a buy opinion on shares of Eli Lilly with a price target of US$964. We see Eli Lilly as well positioned to benefit from the GLP-1 boom and aging population trends in the next years. In our view, the obesity market represents one of the most important opportunities in biopharma due to the breakthrough GLP-1 therapies and also rising global obesity rates.

The company’s existing GLP-1 drugs, Mounjaro and Zepbound, are seeing exceptional growth so far. Sales of Zepbound rose by a record 172 per cent, and Mounjaro sales rose by 68 per cent. So these two products now account for nearly half of Lilly’s total revenue, and we expect this fast growth pace to continue.

We also think Eli Lilly’s focus on innovation continues to be a key differentiator versus peers. The company has two promising R&D assets, Orforglipron and Bimagrumab, which can reinforce its position in the fast-growing obesity treatment markets. Lilly plans to submit a regulatory application for the daily oral GLP-1 pill Orforglipron by year-end, which we think could be a game changer due to its convenience to use.

We think Orforglipron could be the next major catalyst for Eli Lilly and a key revenue driver. We think the pill could start to make a meaningful contribution to results starting in 2027. We also expect sales from Eli Lilly’s early Alzheimer disease treatment to ramp up quickly, especially after its recent approvals in key international markets such as the EU, Japan, Britain and China.

The company will announce its Q3 results this week on Thursday, and we expect another robust quarter. We believe Eli Lilly can sustain superior revenue growth versus peers through 2026. We continue to see strong growth prospects for the company thanks to its diversified portfolio of strong brands. We also think Eli Lilly’s recent announcements for large investments to ensure its manufacturing is the right strategic decision in the current environment.

ROGER: Okay, it sounds like it’s positioned itself in a good spot.

SEL: That’s correct.

ROGER: Okay, let’s move on to Merck. You’re liking this one as well. It’s going at US$98, and I think it was off slightly — they’re all kind of having an off day right now — but it’s off slightly right now. What do you like about Merck?

SEL: So we have long-term views. Our recommendations are at least one year or longer. That’s why it’s good to have a long-term perspective when looking at these recommendations. We have a buy opinion on shares of Merck. And as you may know, the company is best known for its biologic immuno-oncology therapy Keytruda, which has quickly become a top treatment option for cancer.

As you just said, our price target is US$98, and we think shares are trading at a discount to Merck’s five-year historical forward P/E average, and are quite attractive at current valuations, trading at a three-year low. We expect the key oncology drug Keytruda to remain the top-selling drug globally in the next years.

The company has a long-standing strategy of expanding the indications of Keytruda into the more lucrative first-line treatment setting, where more prescriptions are written, and also into cancers with the largest populations. So until 2028, when Keytruda will hit its loss of exclusivity, we think the drug will make around 50 per cent of Merck’s total revenue.

We also see strength in Merck’s cardiology and the rest of its oncology portfolios, and we think the exposure to animal health offers good diversification versus peers. This is roughly 10 per cent of Merck’s total sales, and we expect the animal health segment sales to grow faster during 2025 and 2026.

We also welcome Merck’s successful portfolio diversification strategy, which we think is advancing quite well, with the recently closed US$10-billion acquisition of Verona Pharma. We think the acquisition will strengthen Merck’s growing cardiopulmonary portfolio. The company is also announcing its Q3 earnings on Thursday morning, which we’ll closely follow.

ROGER: The animal health one interests me — that they’re branching into that. There’s that much money in it, is there?

SEL: Definitely. So we think it’s a very niche part of healthcare right now, and we think that because of this trend that we are seeing, where pet owners are treating their companion animals like a family member, there’s really growing interest in companion animal healthcare, which we think is one of the long-term trends the company is going to profit from.

The company also has a livestock segment, which we think is also a segment that is promising when you look long term.

ROGER: Okay, and last but not least, Johnson & Johnson — a classic.

SEL: Yes, so we recently raised our opinion on shares of Johnson & Johnson to buy from hold after the company reported solid Q2 results and announced the separation of its orthopedics business, which is currently under its MedTech segment. Our target price is now US$220, which we lifted from US$166 per share.

We think the Q3 results topped estimates. We think Johnson & Johnson delivered a very solid Q3 performance, with sales reaching US$24 billion, up nearly seven per cent year-on-year, which was above the level we saw in Q2 at 5.8 per cent.

Looking at the segments, the core Innovative Medicine sales increased by nearly seven per cent, powered by the robust oncology franchise, particularly key drugs Darzalex and Carvykti, which, in our opinion, counterbalanced ongoing headwinds from the key immunology drug Stelara, which is facing intensifying biosimilar competition.

Also, looking ahead, we think the Innovative Medicine segment offers a promising long-term outlook due to strong prospects for its key existing drugs but also the new recent launches. While we expect ongoing sales erosion in Stelara to accelerate next quarter due to the entry of biosimilars in the U.S., we think solid growth in key pharma products and also contributions from M&A could help counterbalance this negative impact.

ROGER: Sneak in one last point — go for it!

SEL: Yes. We also think that the decision to separate the orthopedics business was a very good decision. I think it goes well with the company’s strategy of portfolio optimization. We also think that with this move, Johnson & Johnson should be able to better focus on the higher areas of its MedTech segment, such as cardiovascular surgery and vision.

ROGER: Okay, thank you for all that — we appreciate it. Have a great day.

SEL: Thank you.

ROGER: Sel Hardy is a senior equity research analyst at CFRA.

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This BNN Bloomberg summary and transcript of the Oct. 27, 2025 interview with Sel Hardy are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.