AbbVie, Merck cut to Neutral at Citi

Investing.com -- Citi downgraded both AbbVie (NYSE:ABBV) and Merck (NSE:PROR) to Neutral in separate notes Wednesday, citing long-term growth concerns and late-stage pipeline limitations as headwinds for the pharmaceutical giants.

For Merck, Citi said the downgrade reflects slow progress in offsetting looming revenue losses from its blockbuster cancer drug, Keytruda, which faces a loss of exclusivity (LOE) in 2028. 

“While growth headwinds from the Keytruda LOE are well-appreciated, offsets from pipeline progression and new launches are taking time,” Citi analysts wrote, cutting their price target to $84 from $115.

Despite Merck’s strong balance sheet, Citi noted a lack of urgency toward business development that could mitigate a projected 10-20% decline in Keytruda sales post-LOE. 

“We’d argue that commercial stage M&A (>$10B) could provide some relief to shares,” but added that “resolution of policy uncertainties (tariffs, MFN) are a higher strategic priority.”

Citi still sees potential in Merck’s pipeline, including assets like Winrevair for pulmonary arterial hypertension, enlicitide for cholesterol management, and tulisokibart for inflammatory bowel disease. 

However, the firm warned that “the clock is ticking for these assets to commercially scale.”

Turning to AbbVie, Citi also shifted its rating to Neutral, saying the company’s steady stream of quarterly earnings beats may have diminishing influence on the stock price as investor attention turns toward the company’s drug pipeline. 

“While current fundamentals are solid, we suspect that the share impact from quarterly surprises could diminish going forward,” Citi said.

AbbVie’s late-stage pipeline was flagged as relatively light compared to peers, particularly in areas that “may not scale to the current I&I franchise.” 

Citi also cited “a higher perceived policy risk than peers from PBM reform/MFN discounting” as a factor in the downgrade, and reduced its price target from $210 to $205.