JPMorgan's top biotech and pharma picks for the second half

JPMorgan sees opportunity in biopharmaceutical stocks despite their underperformance versus the broader market in 2025, attributing the sector's weakness to concerns over potential tariff impacts and the "most favored nation" executive order. Analyst Chris Schott believes these concerns are overblown, with valuations already pricing in a worst-case scenario, and expects the sector to mitigate tariff impacts through manufacturing repatriation. JPMorgan's top picks include Eli Lilly, bolstered by its recent SiteOne Therapeutics acquisition, and Gilead Sciences, driven by positive Phase 3 trial data for its Trodelvy cancer treatment; Regeneron and Bristol Myers Squibb are also favored.

Analysis

JPMorgan identifies a significant investment opportunity within the biopharmaceutical sector, which has underperformed the broader S&P 500 for a third consecutive year, evidenced by the SPDR S&P Biotech ETF (XBI) declining approximately 7% year-to-date in 2025 while the S&P 500 gained nearly 2%. Analyst Chris Schott attributes this divergence primarily to investor concerns surrounding potential tariffs and the "most favored nation" executive order linked to President Donald Trump's policies. However, Schott posits that these fears are largely priced into current valuations, described as historically depressed, and believes the market reaction is "overdone." JPMorgan anticipates that the biopharma sector can effectively mitigate tariff impacts in the medium to long term through strategies like manufacturing repatriation, and notes there is "no clear path for MFN to move forward without Congressional approval" outside of existing IRA price negotiations. Furthermore, improving fundamentals across the sector are expected to support a "more manageable sales/EPS erosion outlook" for most companies. Among JPMorgan's overweight-rated top picks, Eli Lilly (LLY), despite its stock being flat year-to-date and down roughly 8% over the past 12 months, is highlighted due to its recent c. $1 billion acquisition of SiteOne Therapeutics, aiming to develop non-opioid chronic pain treatments, a key industry focus; FactSet consensus shows 84% of analysts rate LLY a buy with nearly 29% upside. Gilead Sciences (GILD) is another top pick, with its shares having surged over 20% in 2025, driven by positive Phase 3 trial data for its Trodelvy cancer treatment in combination with Merck’s Keytruda; analysts project over 5% further upside. Regeneron Pharmaceuticals and Bristol Myers Squibb also feature on JPMorgan's favored list.

Key Decisions for Investors

• Investors should consider the biopharmaceutical sector for potential contrarian investment opportunities, given JPMorgan's assessment of historically depressed valuations and the view that policy-related headwinds are substantially priced in.
• Focus should be placed on companies with robust fundamentals and clear positive catalysts, exemplified by Eli Lilly's strategic M&A in non-opioid pain treatments and Gilead Sciences' promising clinical trial advancements for its cancer therapy Trodelvy.
• It is prudent to monitor developments regarding U.S. trade policies and individual company strategies for mitigating these risks, such as manufacturing repatriation, as these factors will be critical for sector performance and individual stock outlooks.