Biopharma sector's performance in H2 is expected to be driven more by company fundamentals rather than macroeconomic factors, Morgan Stanley said in a note Tuesday.

As of July 6, the NYSE Arca Pharmaceutical Index has gained 11% and the Nasdaq Biotechnology Index has added 18%, compared with a 10% gain for the S&P 500 Index, with recent stock performance driven more by changes in valuation multiples than by earnings estimate revisions, the investment bank said.

Morgan Stanley said its US Equity Strategy team expects the sector to benefit from broader market leadership. Biotech remains one of the most rate-sensitive sectors, and historically, the sector has delivered nearly 20% annualized returns during falling-rate environments, according to the note.

In addition, merger and acquisition activity remains healthy, with several $5 billion to $10 billion deals recently announced, including AbbVie (ABBV) purchasing Apogee (APGE), and Vertex Pharmaceuticals (VRTX) buying Crinetics Pharmaceuticals (CRNX), the investment bank said.

Morgan Stanley adjusted its price targets on Biogen (BIIB) to $222 from $224, Amgen (AMGN) to $333 from $340, Gilead Sciences (GILD) to $166 from $168, AbbVie to $279 from $278, Moderna (MRNA) to $39 from $33, BioNTech (BNTX) to $119 from $126, Regeneron Pharmaceuticals (REGN) to $730 from $788, Johnson & Johnson (JNJ) to $284 from $283, and Eli Lilly (LLY) to $1,347 from $1,344.

Shares of Biogen, Amgen, Gilead, AbbVie, Moderna, BioNTech, Regeneron, Johnson & Johnson, and Eli Lilly were down 2%, 0.1%, 0.8%, 0.4%, 7%, 1.9%, 1.9%, 0.4%, and 0.5% respectively, in Wednesday trading.

Price: 201.67, Change: -4.03, Percent Change: -1.96