Investing.com -- Bank of America reinstated coverage of 11 major U.S. pharmaceutical and biotech stocks in a note Tuesday, highlighting mixed sector fundamentals.

While innovation potential in disease areas remains a bright spot, challenges such as "the 3 Ps" — patent cliffs, pricing pressures, and political risks — continue to weigh on the industry, according to the bank.

BofA notes, however, that these concerns may already be factored into valuations.

Buy-rated stocks

Eli Lilly (NYSE:LLY): BofA believes LLY should be a long-term core holding due to its robust growth and protective "moats" around its obesity-related products, despite potential volatility.

However, the bank cautions that the stock "is likely to see bouts of volatility on obesity-related news flow."

Gilead (NASDAQ:GILD): "The investment case is simple: a relatively "quiet" stock (good in this environment) with above-average, durable long-term growth – at a below-average P/E multiple," said the bank.

Merck (NS:PROR): The company is said to be arguably the best growth-at-a-reasonable-price (GARP) play, supported by strong Keytruda performance and undervalued long-term growth.

Neutral-rated stocks

BofA sees limited near-term upside for AbbVie (NYSE:ABBV), Biogen (NASDAQ:BIIB), Bristol-Myers Squibb (NYSE:BMY), Johnson&Johnson (NYSE:JNJ), and Pfizer (NYSE:PFE), with challenges ranging from high valuations to uncertainties surrounding COVID revenue and ongoing litigation.

For example, at current levels, further upside for Bristol-Myers Squibb is seen as "more difficult", while Johnson&Johnson's valuation is currently at a premium, according to the bank.

Underperform-rated stocks

Amgen (NASDAQ:AMGN): BofA believes Amgen faces pressures from upcoming patent expirations and an obesity premium that's losing momentum.

Moderna (NASDAQ:MRNA): For Moderna, struggles with uncertainty around COVID vaccine revenues and mixed late-stage pipeline potential have resulted in the bank assigning the stock an Underperform rating.

Regeneron (NASDAQ:REGN): Despite being described as a high-quality company, BofA says Regeneron's leading franchise faces faster-than-expected erosion, with a premium P/E seen as too high.

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