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European pharmaceutical sector earnings poised to rise

Publication Date: 11 Jul 2018 - By ReachX Team By ReachX Team
Actionable
Differentiated

Equity Fundamental Equity UK EU ex-UK USA Biotechnology Healthcare

An emerging wave of blockbuster drugs will accelerate European pharmaceutical companies' revenue growth into 2019, according to a new report. 

In a note to its clients on Wednesday (11 July), ratings agency Moody's said a strong product pipeline augurs well for the sector with patent expiries only having a modest impact on overall revenues in the coming 12-18 months. 

"While there's still a lot of uncertainty around drug pricing, European pharmaceutical companies' pipelines are still very strong, which would suggest accelerated revenue growth in the second half of 2018 and beyond on the back of recent drug launches and drug-development pipelines containing promising drugs with blockbuster potential," says Knut Slatten, Vice President, Senior Analyst at Moody's.

Roche (rated by Moody's as Aa3 stable) and AstraZeneca (A3 negative) have the strongest pipelines. But Roche is facing the threat of biosimilar competition on its three top drugs over the next three years and is increasingly reliant upon its late-stage pipeline for revenue growth during this patent cliff. AstraZeneca is emerging from a long patent cliff that has weighed on its revenue and credit metrics.

Novartis's (A1 stable) and Merck's (Baa1 stable) pipelines have improved, with Novartis increasingly focusing on innovative medicines, notably last year's approval of Kymriah, a CAR-T treatment in oncology, and its recent first-to-market new migraine treatment, Aimovig. Despite a high concentration on oncology drug Bavencio, Merck's pipeline has improved with several new drugs in late-stage development.

GlaxoSmithKline's ( A2 stable) late-stage pipeline is thin with only a limited number of drugs in late-stage development. However, the company has launched key drugs, such as Shingrix, and expanded its Elipta franchise in respiratory in the past 12 months. While Moody's expects that GSK will bring only a few new drugs to market in the next three years, cash flows should remain strong as its exposure to patent expiries decreases in spite of the overhanging threat to a generic substitutable Advair in the US.

Sanofi's (A1 stable) drug pipeline continues to improve with an increasing number of drugs in late stage development. The pipeline quality is also bolstered by the recent acquisitions of Bioverativ and Ablynx, although a number of these assets are at an earlier stage in the pipeline.

Novo Nordisk's (A1 stable) pipeline has very solid revenue potential, and the pipeline is becoming increasingly concentrated on Semaglutide, a diabetes drug that launched last December.

 

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