Can FTSE 100 Drug Giants Weather US Reforms?

GlaxoSmithKline, AstraZeneca and Shire could be impacted by US drugs reforms, but analysts believe the pharmaceutical firms' valuations are attractive

Damien Conover 29 March, 2018 | 9:04AM Karen Andersen
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GSKProposed changes to US drug pricing are a threat to the profits made by largest pharmaceutical companies and have put pressure on industry valuations. Government reforms can have an impact on prices and weigh on the strength of moats or competitive advantages – especially regulation from the US government, as the market represents the majority of profits for most of the large drug firms.

With this backdrop of uncertainty, Morningstar equity analysts believe the industry's valuation looks attractive, as new pricing policies are manageable.

Among UK-listed pharmaceutical firms, GlaxoSmithKline (GSK) – which has a wide moat and a four-star rating – faces low exposure to US drug policy changes and represents one of the most undervalued firms in the drug area. Likewise, the majority of AstraZeneca’s (AZN) sales are derived outside the US, so the wide-moat firm faces fewer repercussions from changes to drug pricing there. But Shire (SHP), which could be the subject of a takeover bid from Japan’s Takeda, could see 2019 earnings hit by exposure to the medical benefits coverage market.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
AstraZeneca PLC8,994.00 GBX-0.10Rating
GlaxoSmithKline PLC1,441.80 GBX0.53Rating

About Author

Damien Conover  is a guest author