Morgan Stanley sees writing on wall for key drug research stocks

Wall Street just split sharply on two stocks in the same industry.

On Wednesday, June 17, Morgan Stanley upgraded Charles River Laboratories (CRL) to Overweight and downgraded IQVIA Holdings (IQV) to Equal-weight.

The twist: IQVIA is buying lab assets that Charles River agreed to sell earlier this year.

Here is what changed the bank’s mind, and what each company still needs to prove.

Morgan Stanley splits its view on Charles River and IQVIA stock

Morgan Stanley upgraded Charles River Laboratories to Overweight, lifting its price target to $220 from $185.

On the same day, the bank cut IQVIA Holdings to Equal-weight, lowering its target to $200 from $225. Ricky Goldwasser and Kallum Titchmarsh handled the Charles River and IQVIA calls, respectively, according to Benzinga.

Both are contract research organizations, or CROs, firms that run clinical trials and compile data for drugmakers.

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Why Charles River just won back Wall Street’s confidence

Morgan Stanley’s bullish case rests on increased funding in the biopharma industry.

More biotech and small drug companies raising cash means more requests for lab work, which feeds Charles River’s testing business, according to Investing.com.

Charles River pulls about 40% to 45% of its revenue from small and mid-sized biotech clients, more than double IQVIA’s exposure. That gives it a bigger lift as biotech funding recovers.

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The company also used the first quarter to refocus, divesting its CDMO and Cell Solutions units and agreeing to sell European lab assets.

Revenue reached $995.8 million, with non-GAAP earnings of $2.06 a share, beating estimates, according to its first-quarter earnings filing.

Why IQVIA’s premium status is suddenly in question

IQVIA’s downgrade has little to do with its Q1 results. Revenue climbed 8.4% to $4.15 billion in the first quarter, and adjusted earnings of $2.90 a share beat estimates, according to its quarterly earnings filing.

This is where the concern lies:

Morgan Stanley drew attention to pharma companies that are considering using artificial intelligence for in-house data management, statistics, and medical writing, instead of paying IQVIA, according to Investing.com.

Related: Johnson & Johnson bets $1 billion on hard-to-treat cancer

The bank estimated that about 30% of the costs incurred in a typical trial are spread across tasks that could eventually move in-house, cutting out the need for service providers like IQVIA.

It also flagged that much of IQVIA’s earnings growth since 2022 has come from stock buybacks, not faster sales. That distinction matters because buybacks can lift earnings per share without real growth underneath.

The twist: IQVIA is buying what Charles River is selling

There is an odd connection in Wall Street’s split verdict.

In February, Charles River agreed to sell European drug discovery assets generating about $144 million in 2025 revenue to IQVIA for roughly $145 million in cash, according to a Charles River press release.

Then-CEO James Foster said Charles River divested the assets after carefully evaluating its core capabilities.

The deal, expected to close this quarter, hands IQVIA new lab sites in the United Kingdom, Germany, Finland and the Netherlands, FierceBiotech reported.

Charles River also has a new chief executive.

Birgit Girshick, its longtime chief operating officer, succeeded Foster in May after his 50-year run with the company, according to a regulatory filing.

What investors should watch before opening positions in either stock

A few markers will show whether this split call holds up.

Catalysts that could prove Morgan Stanley right:

• Charles River’s European asset sale to IQVIA closing on schedule this quarter.
• A continued pickup in biotech funding translating into actual bookings and revenue for Charles River.
• Clear signs of pharma firms moving trial datawork in-house, testing IQVIA’s AI risk.

Price targets are forecasts, not guarantees, and CRO stocks have swung sharply over the past year.

Charles River’s next earnings report is expected in early August, according to Investing.com.

Related: Eli Lilly makes surprising retreat from major market