Morningstar | AZN Updated Forecasts and Estimates from 12 Oct 2018
In our analysis of the Big Pharma companies, we continue to see the industry as well positioned, with strong economic moats. While our analysis reaffirms most of our moat ratings, we are increasing Bayer's moat to wide from narrow. Bayer's divestiture of its material science group combined with a strong drug business and a well-positioned crop science business (bolstered by the Monsanto acquisition) led us to upgrade its moat rating to wide.Key to all the moats for Big Pharma companies is the increasing focus on innovation in areas of unmet medical need, enabling strong pricing power to offset the increasing negotiating power from the pharmacy benefit managers in the U.S. and restrictive pricing in developed markets outside the U.S. While drugs carry patent protection, allowing firms to charge near monopolistic prices, a drug’s true pricing power is determined by several factors, including its benefit to patients and its uniqueness. Governments outside of the U.S. and the PBMs within the U.S. are increasingly pushing back against drug prices for medicines that lack significant benefits. Overall, the stronger the drug's uniqueness and efficacy, the stronger the drug's pricing power. As a result, the majority of drug companies are focusing more development efforts in areas of significant unmet medical need.
Additionally, as segments within Big Pharma firms, animal health and consumer healthcare both carry strong moats, augmenting the moat strength derived in the human branded drug segment. Overall, the moat analysis guides our discounted cash flow valuations, which support undervalued calls on Pfizer, Bayer, GlaxoSmithKline, and Sanofi.
For a complete overview of our Big Pharma moat analysis, please see our report "Big Pharma Moat Outlook: Companies Still in a Strong Position," where we analyze the key points around the moats in the large pharmaceutical industry.
AstraZeneca is a holding company. Through its subsidiaries, Co. operates as a biopharmaceutical company engaged in discovering, developing, manufacturing and commercializing its pipeline of small molecule and biologic prescription medicines, including targeted business development through collaboration, in-licensing and acquisitions. Co. is focused on three main therapy areas: Oncology, Cardiovascular and Metabolic Diseases, and Respiratory. Co. is also selectively active in autoimmunity, infection and neuroscience. In addition, Co. works across small molecules, oligonucleotides and other drug platforms, as well as biologic medicines.
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