Jefferies’ team of analysts have recently been touting Roche as their favourite big European pharma – but going into 2020 it’s Novartis that gets the strongest “buy” rating in a broker note as the risk of price interventions in the US recedes until after presidential elections.
Roche, which has just got the go-ahead from US competition watchdogs to buy the gene therapy firm Spark, has been knocked off the top because of slight concerns about biosimilars competing with its older blockbuster cancer drugs.
According to the analysts led by Peter Welford, Jefferies is “much more optimistic” about revenues from psoriasis drug Cosentyx, which is pulling in sales at almost a billion dollars per quarter for Novartis and contributing earnings per share of 2%-6% above consensus.
The team is also looking forward to launches of Novartis’ ultra-pricey but highly effective gene therapy for spinal muscular atrophy, Zolgensma.
Other new products to interest the Jefferies analysts are the PIK3CA class breast cancer drug Piqray (alpelisib) and its longer-lasting ophthalmology injection Beovu (brolucizumab), which looks set for approval in the EU after backing from the CHMP late last week.
The Jefferies team still likes Roche – it’s just not going to go gangbusters like Novartis with an EPS of 2-3% above consensus and a “plethora” of pipeline opportunities.
Next on the list of EU pharma is Sanofi, which gets a “buy” rating thanks to its decision to abandon R&D into diabetes drugs, amid pricing pressure in the US and competition from the likes of Eli Lilly and Novo Nordisk.
GlaxoSmithKline is the preferred option of the two big UK-based pharmas, which has a “buy” rating thanks to “growing interest” in its pipeline and optimism about its Shingrix shingles vaccine, although this is tempered by a cautious outlook on ViiV’s HIV drugs joint venture.
AstraZeneca has a “hold” rating – although the UK pharma’s earnings trajectory is “impressive” its share price is unlikely to go much higher and the Jefferies team predicts EPS 6% below consensus.
At the bottom of the pile is Novo Nordisk, the only one of the six companies to get an “underperform” rating thanks to concerns about the pricing pressure on the GLP-1 class drugs that are becoming increasingly important to the Danish pharma and its reliance on the diabetes market.
Overall the outlook for the sector is good thanks to new products and breakthrough technologies, growth opportunities in China, and regulatory authorities that are keen to approve novel therapies.
One possible headwind is drug pricing reform in the US, but the team sees only a “dim likelihood” of legislation passing into law ahead of the presidential elections later in 2020.
According to Jefferies updated proposals could be less punitive to pharma than those already tabled by Nancy Pelosi, speaker of the House of Representatives and drug pricing campaigner.
However AZ and Novo are most likely to be hit by reforms, with Roche vulnerable to tinkering with Part B of Medicare, which includes outpatient care, preventive services, and medical equipment.
By Richard Staines
Source: Pharma Phorum
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