EU Pharma re-rating stalled against EU market vis-a-vis defensives, says Nomura analyst

While European Union Pharma has outperformed the EU market by 16% year-to-date, the corresponding performance in the last three months (+1%) has been surpassed by other defensive sectors, says Nomura analyst Amit Roy, pointing to: Beverages (+5%), Food Producers (+16%) and Tobacco (+12%), implying that Pharma‘s re-rating has stalled vis-a-vis other defensives.

The Pharma sector fundamentals are becoming increasingly challenging, he says. In addition to previously-flagged risks - looming 2012 patent expiry, weak pipeline and increased regulation - 2011 witnessed slowing growth in emerging markets (Sanofi to high single-digits and GlaxoSmithKline to low double-digits), pipeline setbacks (AstraZeneca‘s Onglyza [saxagliptin] and Sanofi‘s iniparib), and modest performance of new launches (AstraZeneca’s Brilinta/Brilique [ticagrelor] and Sanofi‘s Multaq [dronedarone]).

“While Pharma may remain at a premium to EU market in the near term given the uncertainty surrounding the sovereign debt crisis in Europe, our median-term growth expectations (2010-13E CAGR 1.6%) are four times lower than the EU market (+6.9%). In this scenario, we find it difficult to see the recent pharma rally as sustainable,” Dr Roy concludes.