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Shire, AstraZeneca and GSK in the red as JP Morgan looks at risks facing pharmaceutical sector

Shire remains the "standout stock" as it has an "extremely compelling valuation”, according to JP Morgan
JP Morgan sees 'limited upside' from new drug launches

Pharmaceutical stocks were in the red as analysts at JP Morgan said they see limited upside from new drug launches, a weakening growth outlook and risks from generic competition.

AstraZeneca PLC (LON:AZN) on Monday said it had achieved positive results from two separate phase III trials of lung cancer drugs Imfinzi and Tagrisso.

JP Morgan raised its target price to 4,500p from 4,200p, saying it sees upside to the launch of Tagrisso in 2018 but left its rating at ‘neutral’.  

Elsewhere, the bank sees downside for multiple launches, including Novartis’ Kisqali, Sanofi’s Soliqua, and Novo’s Xultophy.

“Hence, overall we see limited upside from new launches in the sector,” the bank said.

JP Morgan said Shire Plc (LON:SHP) remains the “standout stock on all metrics” with an “extremely compelling valuation”.

The bank repeated an ‘overweight’ rating on the stock but cut its target price to 5,300p from 5,500p, saying “patience is required”.

GlaxoSmithKline plc (LON:GSK) target price was also cut to 1,570p from 1,750p and its ‘neutral’ rating was left unchanged as JP Morgan believes it is the most exposed to generic competition.

In 2018, the bank sees branded and generic competitive pressures for GSK’s asthma treatment Advair and HIV medication Tivicay.

“Across our EU Pharma large caps, our 2018 earnings per share (EPS) forecasts are broadly in-line for Novartis, Bayer, AstraZeneca and Shire, while we have 1-2% downside for Roche & GSK and 4% & 7% downside for Novo & Sanofi, respectively,” JP Morgan said.

JP Morgan’s EPS growth outlook for fiscal years 2018-21 for the EU large sector has fallen year-to-date from 6.4% at 3 January 2017 to 5.5% today.

Shares in GSK fell 0.71% to 1,486.50p while AstraZeneca dropped 0.77% to 4,875p and Shire declined 0.16% to 4,022.50p. 

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