Pharmaceutical share prices 'set to rise'
Goodbody Stockbrokers analyst Ian Hunter has issued a major 81-page report on the sector, "Irish Pharmaceutical Sector On a High," which has been circulated to clients and investors this week. Despite rating Elan an "add," Mr Hunter put a monetary estimate on Elan's potential exposure to class action law suits lodged by disgruntled investors in the $50m to $295m range, but said an early settlement of these actions would be beneficial to the share price.
On the overall sector, Mr Hunter said improving product newsflow and a return to positive earnings growth across the sector will "outweigh patent and pricing pressures, resulting in a steady momentum in the sector through 2004."
Mr Hunter said they believe the fundamental de-rating of the pharmaceutical sector in 2001 and 2002 reflected a shift in emphasis in the sector away from strong earnings momentum growth stories of the late 1990s towards a more rigorous search for value.
"When looking for growth potential, emphasis was placed on current and short-term performance (earnings growth).
"We now believe that emphasis has shifted to inherent value which encompasses future potential to a greater degree, primarily reflected in pipeline strength," he said. Commenting on Elan's prospects, Mr Hunter pointed out that the company was now a very small player in a fragmented biotech sector.
The Goodbody analyst said that if the company could remove the legal overhang and with any financial risk averted until 2008, the company could become a takeover target.
"On individual stocks, we believe Galen has the potential to maintain current momentum. Earnings-enhancing acquisitions will give further upside," he said.
Mr Hunter said United Drug remains a solid performer with robust organic growth augmented by potential upside from acquisitions in the medical and scientific division.
"Icon needs to address concerns over the level of new business wins, backlog, and the laboratory business over the next two quarters.
"Until there is more visibility on these issues we retain our add recommendation," said Mr Hunter.
Mr Hunter said that with the Unigold HIV test factored in to Trinity Biotech share price and given potential margin pressure over the next two quarters, they are revising their recommendation from buy to add.
