Strong 3Q so far bodes well for Astra and Glaxo

Of the Big Pharma companies that have already reported third-quarter results, all have increased their full-year guidance

Damien Conover | 26-10-09 | E-mail Article

The majority of Big Pharma firms have reported strong third-quarter results, and we expect GlaxoSmithKline, AstraZeneca and Sanofi-Aventis will follow this positive trend with favourable results this week. All of the six Big Pharma firms that have reported so far have increased their full-year forecast. The improved outlook matches our investment thesis on the industry that the inelastic demand for drugs would largely hold up in a slowing economy.

For the companies that have not yet reported, we expect third-quarter results to largely meet our expectations and to include increases to company-issued guidance for the remainder of the year. For AstraZeneca, we believe potential upside to earnings in the quarter could come from cardiovascular drug Toprol-XL, which has been largely written off because of its patent loss more than a year ago. However, generic manufacturing delays have given the branded version of Toprol-XL new life. Turning to Sanofi-Aventis, while we expect downward pressure on sales of diabetes drug Lantus because of reported links to cancer, the lack of robust media coverage of the side effect could soften the impact. Lastly, we expect GlaxoSmithKline's top line will be hit by generic competition, but the bottom line should benefit from cost cuts.

Damien Conover, CFA is a senior stock analyst for Morningstar.

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