EU large-cap Pharma underperforms

The large-capital pharmaceutical sector in the European Union is trading at historical lows and has underperformed the EU market since the start of the year by 3% compared to the Eurotop 300 Index, note analysts at Lehman Brothers. They add that this is despite market conditions that should favor defensive names.

Although patent expiries, price pressure and a lack of new drugs remain an ongoing negative theme, they say that "EU pharma remains highly cash generative and is relatively well protected from the current economic environment with high government funding of drug spend." Between 2008 and 2012, the sector will generate about $42.0 billion of free cash flow each year, growing at 5% per annum, they forecast, with 75% of FCF returned to shareholders each year through dividends.