Bottom-up drug analysis leaves Nomura behind consensus on European pharma growth prospects

Analysts at Nomura have put out a bearish assessment of the European pharmaceutical industry, downgrading the sector’s growth prospects and saying they are lower than consensus forecasts.

They stated: “We downgrade the European Pharmaceuticals sector to Bearish from Bullish. Our previous Bullish rating was triggered in September 2009 by the steep 20% discount to market when health reform rhetoric exaggerated the concurrent cyclical rotation. With the sector now at only a 6% discount (versus FTSE European index), we see the street’s bullish view on key pipeline/marketed/recently-launched drugs and the uncertainty associated with margin impact of soon-to-be-generic blockbusters, leaving downside risk to consensus 2009-14E EPS 9earnings per share] CAGR [compound annual growth rate] from the current 4.5% level towards Nomura’s 2.9% EPS CAGR estimate (-34% below consensus).

The analysts see the street’s estimate of 8% growth as over-optimistic on drug commerciality. While the street’s drug forecasts leave the sector’s EV [enterprise value] at a seemingly inexpensive 9% discount to its drug-by-drug, bottom-up net present value (NPV) for the industry, our forecasts show the EV at NPV parity at best.