Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

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<ul><li class="p1">Pipeline innovation outpacing patent losses represents a core element of the wide moat ratings for most of the Big Pharma firms.</li><li class="p1">Slowing patent losses over the next five years should accelerate the growth rates of the Big Pharma firms and increase the returns on invested capital as new pipeline drugs launch.</li><li class="p1">Overall, we view the Big Pharma group as moderately undervalued and we are more bullish than 2020 consensus estimates on the pipelines for Bristol ($2 billion above), Merck ($3 billion above) and Sanofi ($1 billion above) and view these stocks as undervalued</li></ul>Key Takeaways:<ul><li class="p1">Top scoring Sanofi looks both undervalued and well-positioned based on a top-tier pipeline, robust growth from currently marketed products, and minimal patent losses during the next five years. Sanofi&rsquo;s steadily growing rare disease, consumer, vaccine, and animal health segments combined with an improving late-stage and mid-stage pipeline, led by the recent approval of Praluent, more than offset limited generic competition to long-acting insulin Lantus. (See page 4 for complete ranking).</li><li class="p1">Adjusting for total size, Bristol scores at the top of the group and looks undervalued, largely driven by a powerful entrenchment in immuno-oncology that sets up industry-leading growth. Bristol&rsquo;s likely first-mover advantage in several cancer indications with Opdivo along with multiple combination cancer assets in early-stage development should lead to Bristol gaining over a third of the $30+ billion immuno-oncology market by 2022.</li><li class="p1">With the lowest overall score, AstraZeneca&rsquo;s growth outlook is weighed down by several patent losses. Despite the poor outlook, we believe AstraZeneca looks fairly valued and holds several underappreciated early pipeline assets, including AZD1775 (WEE-1 for cancer) and AZD3293 and MEDI1814 (Alzheimer&rsquo;s).</li><li class="p1">Lingering patent losses following the patent cliff peak in 2012 have finally worked through the system, and Big Pharma&rsquo;s five-year generics exposure looks the lowest since before 2010. The group&rsquo;s outlook for growth is improving as we see declines annualize for several blockbusters including Nexium, Abilify, Cymbalta, Evista, Diovan, and Celebrex.</li><li class="p1">In aggregate, we view the Big Pharma industry as 7% undervalued, largely driven by overly pessimistic pipeline expectations. Relative to consensus, we are projecting higher sales for several early stage drug candidates as well as approved drugs with expanding indications, including immuno-oncology drugs Opdivo (Bristol) and Keytruda (Merck), women&rsquo;s health drug Elagolix (AbbVie), and staph vaccine SA4Ag (Pfizer). See page 3 for a complete list of underappreciated Big Pharma drugs. Additionally, on page 3, we highlight the largest potential drugs that have very low awareness from the investment community.</li></ul>Analysts: Damien Conover CFA &amp; Sonia Vora

Pipeline innovation outpacing patent losses represents a core element of the wide moat ratings for most of the Big Pharma firms.Slowing patent losses over the next five years should accelerate the growth rates of the Big Pharma firms and increase the returns on invested capital as new pipeline drugs launch.Overall, we view the Big Pharma group as moderately undervalued and we are more bullish than 2020 consensus estimates on the pipelines for Bristol ($2 billion above), Merck ($3 billion above) and Sanofi ($1 billion above) and view these stocks as undervaluedKey Takeaways:Top scoring Sanofi looks both undervalued and well-positioned based on a top-tier pipeline, robust growth from currently marketed products, and minimal patent losses during the next five years. Sanofi&rsquo;s steadily growing rare disease, consumer, vaccine, and animal health segments combined with an improving late-stage and mid-stage pipeline, led by the recent approval of Praluent, more than offset limited generic competition to long-acting insulin Lantus. (See page 4 for complete ranking).Adjusting for total size, Bristol scores at the top of the group and looks undervalued, largely driven by a powerful entrenchment in immuno-oncology that sets up industry-leading growth. Bristol&rsquo;s likely first-mover advantage in several cancer indications with Opdivo along with multiple combination cancer assets in early-stage development should lead to Bristol gaining over a third of the $30+ billion immuno-oncology market by 2022.With the lowest overall score, AstraZeneca&rsquo;s growth outlook is weighed down by several patent losses. Despite the poor outlook, we believe AstraZeneca looks fairly valued and holds several underappreciated early pipeline assets, including AZD1775 (WEE-1 for cancer) and AZD3293 and MEDI1814 (Alzheimer&rsquo;s).Lingering patent losses following the patent cliff peak in 2012 have finally worked through the system, and Big Pharma&rsquo;s five-year generics exposure looks the lowest since before 2010. The group&rsquo;s outlook for growth is improving as we see declines annualize for several blockbusters including Nexium, Abilify, Cymbalta, Evista, Diovan, and Celebrex.In aggregate, we view the Big Pharma industry as 7% undervalued, largely driven by overly pessimistic pipeline expectations. Relative to consensus, we are projecting higher sales for several early stage drug candidates as well as approved drugs with expanding indications, including immuno-oncology drugs Opdivo (Bristol) and Keytruda (Merck), women&rsquo;s health drug Elagolix (AbbVie), and staph vaccine SA4Ag (Pfizer). See page 3 for a complete list of underappreciated Big Pharma drugs. Additionally, on page 3, we highlight the largest potential drugs that have very low awareness from the investment community.Analysts: Damien Conover CFA &amp; Sonia Vora

Healthcare Observer: As Long-Term Patent Exposure Ebbs, Innovation in Big Pharma Pipelines Support

Germany

Fresenius SE & Co KGaA is a global health care group with products and services for dialysis, the hospital and the medical care of patients at home. The Company sells dialysis, infusion, transfusion, and diagnostics equipment and systems, blood separators, plasma, hemofilters, nutritional liquids, and solid and liquid pharmaceuticals.

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Fresenius & KGaA (FRE GY)

Healthcare Observer: As Long-Term Patent Exposure Ebbs, Innovation in Big Pharma Pipelines Support

Pipeline innovation outpacing patent losses represents a core element of the wide moat ratings for most of the Big Pharma firms. Slowing patent...

Morningstar, Inc.

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