Euro Pharma Stock Picks: "Stick With The Winners"

In a changing European marketplace, pharmaceutical stock investorsshould "stick with the proven winners," say analysts at Morgan Stanley Research. In this respect, their top choices are Glaxo Wellcome and SmithKline Beecham in the UK and Novartis in continental Europe. The analysts say they remain cautious on the outlook for "superficially cheap stocks" like Pharmacia & Upjohn and are "more wary of more expensive" issues such as Hoffmann-La Roche.

Until recently, Europe was a comparatively stable environment for the drug sector, in contrast to the significant changes seen in the USA and to the repeated price reductions in Japan, the analysts note. Generic competition was a factor in Germany, the Netherlands and the UK, but essentially absent elsewhere, they say, adding that in these markets the generic prices are discounted much less than in the USA.

Europe No Longer A "Buffer" New product launch prices were substantially lower than in the USA but patent expirations resulted in gentle, manageable declines. In essence, the analysts comment, Europe was a buffer to what happened in the USA; it dampened explosive growth in the USA and cushioned companies undergoing major patent expiration in the USA. However, they believe all this has changed, with the European market dynamic starting to look much more like that of the USA.