Pharmaceuticals & Biotechnology - Canaccord Genuity Quest

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1 Δεκ 2012 (πριν από 4 χρόνια και 10 μήνες)

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Sector Analysis

This is independent investment research. Please see the disclosure and disclaimer sections for further
information.

A member of the Collins Stewart Hawkpoint Group


www.collinsstewarthawkpoint.com

Pharmaceuticals & Biotechnology


Europe
08 November 2011

Recommendations / TPs
Ticker Rec

Price

TP

￿￿￿￿￿￿￿￿side

AZN LN Hold 2966p

3000p

1%

BAYN Buy €46.03

€64.00

39%

GSK LN Buy 1372p

1625p

18%

NOVN VX Hold SFr49.91

SFr55.00

10%

NOVOB
DC
Sell DKK592.50

DKK515.00

(13%)

ROG VX Buy SFr142.05

SFr160.00

13%

SAN FP Sell €48.94

€48.00

(2%)

SHP LN Sell 1988p

1650p

(17%)






Key changes
Ticker Rec Target Price

EPS

AZN LN = 0%

0%

BAYN = 0%

0%

GSK LN = 0%

0%

NOVN VX ￿ ￿18%

0%

NOVOB DC = ￿2%

0%

ROG VX ￿ ￿7%

￿1%

SAN FP ￿ ￿8%

￿3%

SHP LN = ￿3%

0%





Updating views / post-Q3 wrap
Sector view
Macro-conditions aside, we are broadly neutral overall. Detailed view p2.
Key stock recommendations
Most preferred: GSK, Bayer. Least preferred: Sanofi, Shire.

AstraZeneca | Hold | Still a bearish holder for the cash returns
The bleak future is priced in and cash returns remain sufficient compensation,
though today’s TC5214 result is yet another R&D blow. Fostamitinib is now key.
Bayer | Buy | On a roll (and a break-up?)
With macro fears overdone, Xarelto approved EU/US, and the pipeline surprising
thick & fast, we see little to fault given current valuation/our break-up view
GlaxoSmithKline | Buy | Stays top pick given respiratory outlook
Post solid Q3’s and our recent respiratory market review stays top pick for the
structural recovery/pipeline newsflow. Q1’12 Relovair data is key.
Novartis | Cut to Hold | Having to work harder, switch to Roche
With a tough ’12/’13 looming on Diovan’s genericisation and cautious investors
clearly playing wait-and-see we switch our preference to Swiss peer Roche.
Novo Nordisk | Sell | Risks still downside skewed, still expensive
Saved again by Victoza, Novo continues to look modestly expensive, with US
reform, Victoza competitor, China and biosimilar risks to the fore in ’12.
Roche | Up to Buy | Full circle: warming to the recovery story
With the pipeline back in full swing, biosimilars in the price, and a structural
outlook second only to GSK’s we upgrade to Buy, ahead of key data in December

Sanofi | Cut to Sell | Big questions on the outlook for ‘12/’13
Sanofi is cheap but likely to stay so for some time on Q3’s evidence: Genzyme/
emerging markets are key and suffering, whilst cons ’12 EPS still looks too high.
Shire | Sell | Not enough to change our view
Post (another) AXR-driven beat, we maintain our bearish view on the risk/reward
proposition, with ’12 guidance and competitor Q1 catalysts key near-term risks



Emmanuel Papadakis (Analyst)
+44 20 7523 8416
EPapadakis@collinsstewart.com





Page 2
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
Table of contents
Executive Summary...........................................................................................3

Company updates & views..............................................................................4

Adj. Quest valuations.....................................................................................12

NPV Charts........................................................................................................14

Forecasts............................................................................................................17

Sector data........................................................................................................30





Page 3
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
Executive Summary
What’s in the price
After a barely in-line 2010 large EU pharma has outperformed the market
through a deteriorating and highly volatile macro environment in ’11 (EU large
caps ex-SHP vs SXXP ~+12% YTD). The consensus investor view appears to be
the sector isn’t as defensive as once was the case in an age of public austerity,
but patent cliffs/rock-bottom R&D productivity look largely priced in, the sector is
still a good place to hide, and there is upside optionality from pipeline/cost-
cutting delivery as we move through the sector trough in ’12. We largely share
that view and barring a near-term return to highly bullish market conditions
(which looks unlikely), expect modest outperformance is likely to continue. That
said, we continue to expect increasingly divergent performance between
individual names: a structural re-rating looks warranted for Glaxo, Novartis and
Roche. That hardly appears the case (near-term) for AstraZeneca or Sanofi
however, and we have near-term concerns on the latter in particular. The high-
multiple ‘growth’ names, Novo and Shire continue to look expensive to us, with
material risks capable of puncturing current multiples over the next 12 months.
Bayer stays a core Buy for its pharma growth story (Xarelto-driven) and
probability of structural reorganisation (ie MatSci exit) in ’12.
The Collins Stewart view
As a consequence of the above, we continue to rate GSK and Bayer as top picks,
and maintain a sell rating on both Novo and Shire. We switch our Swiss
preference from Novartis to Roche: though we think both look cheap Roche is
clearly entering a period of stronger momentum just as Novartis is doing the
reverse. AstraZeneca stays a Hold, whilst Sanofi is cut to Sell on the severity of
near-term headwinds; absolute downside looks limited, but in our view it should
be an underweight.
The Quest
TM
perspective
We take the opportunity to update all adjusted Quest
TM
valuations in this note,
detailed below.
Valuation and recommendation
We update our valuations as commented below; we typically set PT’s for Buy/Sell
recommendations using NPVs, whilst Holds are by necessity set within
reasonable range of the current price.
Risks to investment case
As always there are numerous risks to our views. These include both prevailing
economic/macro investment environment (for the sector), and pipeline, financial,
and other typical risks (for the individual names).

Figure 1: Sector summary
Sector Summary Rec.
AstraZeneca
Hold
2974
3000
1%
3295
2417
6.4
5.8%
17.6%
-5%
-7%
Bayer
Buy
45
64
43%
74
80
9.5
3.7%
11.1%
14%
5%
GlaxoSmthKline*
Buy
1379
1625
18%
1625
1875
12.3
5.1%
9.3%
12%
3%
Novartis
Hold
50
55
11%
67
68
10.3
5.3%
9.9%
6%
2%
Novo Nordisk
Sell
594
515
-13%
515
485
20.6
1.9%
4.9%
14%
8%
Roche
Buy
144
160
11%
160
185
11.5
4.6%
8.6%
7%
4%
Sanofi-Aventis
Sell
49
48
-3%
64
60
7.4
5.3%
13.7%
-3%
2%
Shire
Sell
2007
1650
-18%
1650
1618
19.0
0.5%
5.4%
11%
9%
Average (excl. SHP, NOVO)
9.6 5% 12% 5% 1%
Sales
CAGR 3yr
Price
Target
price
Upside/
downside
NPV Adj. QVPS
Adj.P/E
'11E
DPS Yield
'11E
EPS
CAGR 3yr
FCF Yield
'11E
Source: Collins Stewart Research





Page 4
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
Company updates & views
AstraZeneca | Hold | Still a bearish holder for the cash returns
Post-Q3 changes:
Sales +1-2%, ’11 EBIT -1% but up 1-2% beyond. Our NPV is up <1% to 3295p
(3275p), our PT is unch. at 3000p.

View:
We see little hope for AZN’s mid-term outlook but the cash returns are of
sufficient magnitude to compensate: we model $3bn ongoing buybacks,
equating to ~$6.5bn pa cash shareholder returns (an aggregate ~11% yield).
Modest upside risk derives from upcoming pipeline read-outs: TC5214 in
depression (Q4’11, NPV 111p/sh) and fostamatinib (H2’12, NPV 106p/sh),
though an initial failure for the former today is clearly a blow and reduces
probability of a viable programme. Key focus is likely to remain the trajectory of
Crestor scrips in the face of imminent Lipitor generics, though should recent
management comments on the stability of >90% of current share prove correct,
the initial authorised-generic-Lipitor-period impact is likely to be benign. It’s also
clear, however, that Brilinta’s launch is likely to remain slow at best, whilst
positive Relovair data in ’12 would have clear negative read-across for
Symbicort. On the operating side, core EPS and margin guidance for ’12 will be
key in assuaging (or otherwise) fears of a Seroquel-driven margin collapse: we
currently sit 7% ahead of ‘12E EPS consensus (albeit partly on higher buybacks).

Bayer | Buy | 2012 likely to surprise on the upside
Post-Q3 changes (published yesterday with Xarelto’s news):
Minimal: no sales changes, EBITDA/core EPS +1% on margins. No change to
€74/sh NPV or €64/sh SoP (latter setting price target).
View:
Bayer endured a torrid summer on the fear of a macro-driven MatSci margin-
collapse and strong competitor data to flagship drug Xarelto, as well as a highly
public adverse FDA advisory review for the latter. We took the view concerns
looked excessive on all fronts and that has largely proved to be the case, with
robust Q3 results/Q4 guidance for MatSci, and earlier than expected EU approval
for Xarelto followed by an upside surprise positive result in the ACS ATLAS trial,
and on Friday, an immediate and clean (broad label) approval for Xarelto in the
US. Competitor data has clearly eliminated the blue-sky scenario for Xarelto, but
given key advantages (particularly once-daily dosing) and a year’s head-start vs
key competitor Eliquis (PFE/BMS’s apixaban) we still see a peak Bayer-booked
€3.7bn sales forecast as feasible. Despite all that, Bayer has still over the last 6-
mo performed only in-line with the Dax, underperformed the SX4P by 3%, and
the SXDP by 17%, which we find quite incongruous.
Further catalysts loom in the form of the presentation of the last piece of major
Xarelto data 13/11/11 in ACS (acute coronary syndrome). The data details will
be key in assessing whether standalone ACS represents a viable commercial
opportunity for Bayer, but given consensus carries no estimates in the setting we
see only upside risk, and estimate a positive risk/benefit balance could add
>€2/sh to our NPV. Set in the context of additional recent positive pipeline
surprises for alpharadin and regorafenib, and a likely strong EU/US Xarelto
launch, we think Bayer pharma has an extremely positive mid-term outlook. We
Minor upgrades post
-
Q3

Cash returns just about compensate for
the outlook
Minimal post
-
Q3 changes

Sticking with Buy as momentum
rebuilds




Page 5
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
also maintain our view action on the untenable current conglomerate structure is
inevitable, despite the necessary management rhetoric. With an ‘11E adj PE 10x,
div yield 3.5%, FCF yield 10.6%, 38% upside to SoP of €64, that makes Bayer a
core Buy.
GlaxoSmithKline | Buy | Stays top pick post respiratory review
Post-Q3 changes:
Minimal; sales and op. profit are +1% mid-term. Our 1625p NPV (and PT) is
unch.
View:
Post our recent NPV upgrade / long company & respiratory market review note
(‘Cusp of a new era’, 18/10/11) and solid Q3 results, we make no change to our
view or ‘top-pick’ recommendation. Despite recent management caution on the
extent of guided-to operating leverage in ’12, the structural recovery / ‘first-past-
the-cliff’ story is becoming increasingly clear. Translating into double-digit EPS
growth as it should over the next few years, we expect the re-rating to continue.
The respiratory market outlook remains key of course, with Relovair’s pivotal
COPD two 12-month P3 studies due Q1’12 critical to the entire thesis. If the
results are positive as we expect, we see very strong performance from GSK in
’12. If delays to EU Advair generics persist beyond ’12 as now appears feasible,
that will only be amplified.
GSK reported more positive pipeline data yesterday with the presentation of the
much-awaited ENABLE-1/2 data for Promacta in Hepatitis C. Whilst the efficacy
data was impressive, we see two key questions overhanging the prospect of a
blockbuster opportunity / material upside to our current peak £260m sales
forecasts (which give an NPV of 15p/sh in our 1625p/sh group NPV):
- The changing paradigm for HepC treatment, given recent approval of
bocepravir/telaprevir. Whilst the latter are used in conjunction with PEG-
interferon, there is still some (modest) question of design relevance
- The safety profile, which looked acceptable in ENABLE-1 but showed a
significant elevation of thromboembolic events in ENABLE-2 which will
doubtless face intense regulatory scrutiny
We await greater clarity on both issues before making material upgrades to
current forecasts.
Novartis | Hold | Having to work harder
Post-Q3 changes:
Sales unch, core op. profit cut 1%. NPV unch. at CHF67/sh. We cut our PT (from
NPV) to CHF55.
View:
We have no problem with the fundamental value and operational-execution
story at Novartis, nor with the aggregate guidance for sales/margin growth
through ’15. Recent pipeline result and Q3 results have demonstrated however
just how hard the stock is having to work to please a market on an
overwhelmingly consensual story. It is also becoming increasingly clear that
Alcon is proving a longer-lived overhang on the investment thesis for many than
we had appreciated: our view remains Novartis paid a full but not excessive price
for a high quality asset, sunk costs are irrelevant, and as Q3 amply demonstrated
the margin accretion/synergy opportunity story is real. However

GSK stays top pick; Q1’12 Relovair data
key
Cut to Hold on grow
ing headwinds,
investor caution into Diovan




Page 6
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
conglomeratisation fears evidently remain to the fore for many, and are
compounding caution over the margin outlook in ‘12/’13 on Diovan’s
genericisation. Management have now pointedly refused to take the opportunity
to guide to consistent annual margin improvement through that period, whilst
the additional reticence on buybacks has also proved unhelpful. We view
concerns over the margin outlook as overdone, not least given Alcon tailwind,
and also view recent pharma pipeline success as underappreciated (even taking
into account the US respiratory delays / BG12 data). Nonetheless we see the
margin outlook (and by implication, scope for EPS growth) for ’13 as an ongoing
overhang through ’12, along with some risk around ’12 guidance with Q4 results.
Novartis Pharma is entering a period of intense generic pressure; whilst Alcon
was part of the fix to that issue, it is likely to preclude a substantive re-rating
until investors feel there is greater visibility on the margin and earnings outlook
over the next 24 months. Given that, we remain positive on the name but switch
our near-term preference to Swiss peer Roche. Near-term upside risks include the
MenB vaccine EU approval decision (which is key), and further Afinitor data
(gastric).
The bottom-line is Novartis remains cheap but is likely to have to work
increasingly hard to drive meaningful outperformance vs the sector; given
the accumulating headwinds into H1’12 that is likely to be difficult. We
switch our preference to Roche where the wind is clearly starting to head in
the other direction. For reference, since upgrading to Buy 7/12/09 Novartis
has outperformed the market (SXXP) by +14%, and the large cap EU-6 by +5%
(c2% ex-Bayer). ’11 has seen ’10’s outperformance vs Roche largely reversed,
but Novartis has still outperformed its swiss peer by 3% since Dec’09.

Novo | Sell | Victoza, reform & biosimilar risks to the fore in ‘12
Post-Q3 changes:
Sales unch., op profit +2%, whilst higher buybacks offset the guided-to greater
hedging losses to net out on EPS near-term. Mid-term EPS is up 4-5% on Victoza
and margins. Our NPV is +2% to Dkr515 (mainly Victoza), setting PT.
View:
Having flirted with our NPV and target price, Q3 drove a recovery for Novo
shares on the back of solid results, a buyback upgrade, and reassuring
preliminary ’12 guidance. We continue to appreciate the merits of the story: a
‘clean and simple’ investment thesis (making half the world’s insulin in a
diabetes pandemic), almost 100% FCF return to shareholders, and a strong
ongoing launch for Victoza driving ongoing mid-teens op. profit growth and even
better EPS growth. With no core/GAAP reconciliation or restructuring charges to
navigate, and the prospect of extending the insulin franchise through degludec,
the generalist appeal is clear. Nonetheless, we remain sellers with modest
downside on the current valuation proposition, identifying several material risks
that could drive a slight derating through ’12:
￿
’12 guidance incorporates no probability of the dual-eligible part D rebate
being introduced in the US (ie further material US healthcare reform), which
we estimate could knock 3-4% of group ’12 EPS.
￿
As we have long suggested, the combination of price cuts and intensifying
local (biosimilar and human insulin) are likely to take the froth off high
expectations for the China outlook; even Novo’s modest ongoing +15%
China sales growth guidance/expectation looks at some risk
Minor upgrades post
-
Q3

Almost a Hold, but not quite; ’12
newsflow could burst bubble





Page 7
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
￿
The long overdue intensification of GLP-1 competition. Admittedly Bydureon
has been handicapped by the DURATION6 failure vs Victoza, but arrival of
lixisenatide, and potentially albiglutide, should see a tougher environment
going forward. In particular, the H2H study of once-weekly albiglutide vs
once-daily Victoza has critical implications if it shows non-inferiority.
￿
Human insulin/biosimilar insulin competition is likely to accelerate in
intensity, with H1’11 pressure from Lilly in our view a flavour of the likely
mid-term implication. We note in particular, Lilly’s development of a
biosimilar glargine has negative pricing implications for the branded ‘value’
segment and the size of degludec’s opportunity.

Roche | Up to Buy | Warming to the recovery story
Post-Q3 changes:
Sales / op. profit and core EPS all cut 1% for ‘11 and up 2% thereafter. NPV up
7% to CHF160 on various adjustments incl. FX and margins mid-term.
View:
We upgrade Roche to Buy, coming full circle post our Sell recommendation for
much of 2010 and upgrade to neutral on 14/2/11. We retain the view both Swiss
names are cheap and have a preferential outlook to several peers, but switch our
preference from Novartis to Roche, driven by:
￿
Sales/EPS outlook: After flagging the likely disappointment of Q3 we expect
that to represent the last of the material misses vs cons expectations. Roche
has been in a long-downgrade cycle: through much of ’10 on Avastin BRC
and biosimilars, and much of ’11 on a strengthening CHF. With the CHF now
back at some level of normality post the SNB intervention, and underlying
forecasts looking fully adjusted for the new reality, we expect current
forecasts to form a realistic base with modest upside risk from ’12 guidance
with Q4 results.
￿
In-line franchise risks well understood: In particular the Herceptin 6/24mo
use debate has been treated to voluminous quantity of commentary. With
the outcome looking well balanced (and the PHARE study timing being
pushed back) we think a dramatic shift in clinical practice is unlikely.
Elsewhere, we note a positive outcome from ADACTA (Actemra vs Humira
H2H) look upside risk to estimates.
￿
Structural outlook highly similar to GSK ie no proper patent cliff to face, a
return to mid-single digit sales growth that should be operationally leveraged
into at least high single digit EPS growth over the next few years
￿
Pipeline rehabilitation: The culmination of ‘11’s strong set of pipeline
data/approval newsflow should be the most important: pertuzumab’s
CLEOPATRA data at SABCS in December. Early-stage and therefore less
important, but with arguably equally significant mid-term implications, will
by the GA101 H2H Mabthera P2 data at ASH the following week. That
should be followed in ’12 by building speculation on the dal-OUTCOMES
dalcetrapib study, and the TDM1 2
nd
line BRC EMILIA data. Needless to say
the dalcetrapib data has the potential to transform Roche’s mid-term
outlook overnight, which hardly looks factored into current valuation.
That 1
st
line TDM1 MARIANNE and GA101 NHL GALLIUM data are not
likely before 2015 is unfortunate from a lifecycle management
perspective, but as we comment below, biosimilar risks now look fully
understood leaving the outcome as potentially upside risk to mid-term
estimates
Up to Buy on impressive pipeline
recovery story




Page 8
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
We also note the strong run of ’11 newsflow that is likely to support
continued upgrades and momentum through ’12: the approval of
Zelboraf, EU ovarian 1
st
line approval, strong early MetMab and TDM1
data, plus the recent filing of vismodegib in BCC.
￿
New CFO/change in management rhetoric: whilst the sharp change in
rhetoric has stopped short of material commitments to returning greater
levels of cash to shareholders, the divi yield is acceptable (‘11E 5%) and the
change in tone/willingness to engage has pacified on most fronts post a
terrible 2010. In particular we are optimistic that the new CFO, who has been
given limited opportunity to do much to date (the CHF2.4bn cost cutting
programme was already in place on arrival), will be in a position to make a
more meaningful contribution at the Q4 results.
￿
Biosimilars in the price: Biosimilars, the major driver of our bearish view
through ’10, now look fully reflected in both cons. forecasts and the market’s
conceptual thinking. The last remaining near-term overhang, imminent FDA
guidelines, also look well flagged and are unlikely to make any further
material contribution to expectations (not least given Roche’s portfolio has a
few more years of patent life in the US vs EU).

The bottom line is that Roche’s outlook ’11-’14 is second only to GSK’s (and
conceivably could be better), and is likely to drive a re-rating toward a low-
teens P/E multiple accordingly. We will flesh out the case for being positive in
greater detail in due course, but would not wait for the December catalysts
to switch from Novartis or buy into the story. We view our forecasts as
conservative and see a mid-single digit sales and high-single digit EPS growth
outlook as a minimum base case, and appealing given the current ‘11E 11x
PE valuation.

Sanofi | Cut to Sell | Big questions…
Post-Q3/September strategy seminar changes:
We update our model post the recent strategy seminar and recent Q3 results:
Sales unch., adj. (‘business’) op profit (ie op. profit post minorities and post-tax
associates on Sanofi’s definition) is cut 2% for this year, 8% next year, and 5%
beyond. EPS falls a similar amount. NPV falls 2% to €64. The cuts are a
combination of sales (notably Genzyme, Multaq), Plavix/Aproval associate
income, and pharma margins (the latter in-line with guidance provided 6/9/11).
We set our PT at €48, implying limited absolute downside but less upside than
peers.
View:
We retain the view management are doing a highly capable job in a very
difficult situation, but Buffet once said (to paraphrase, and notwithstanding we
believe he still holds Sanofi stock), it’s better to invest in average management in
a company with many tailwinds than quality management in a company
struggling with numerous headwinds. Q3 results appeared superficially in-line
but actually crystallised several materials concerns for us post the recent strategy
seminar update. Most fundamentally, management’s mid-term guidance was
suitably aggressive, but we are struggling to see how it will be achieved:
￿
Consensus too high: Cons numbers for ’12 and ’13 still look too high even
after the recent low-balled guidance update (which itself was materially
below ’12 cons at the time in the form of guidance for a 31% ‘12E business
operating margin).
Modest cuts, near and mid
-
term

Looks a value
-
trap near term





Page 9
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
￿
Sales growth/emerging markets: We have substantial doubts over the
shape of the sales trajectory beyond ’12. We struggle to see how Sanofi will
achieve the targeted +5% ’12-’15 sales growth CAGR under current market
conditions (or at least, that it will likely be back-end-loaded toward ’15). In
particular, a sustained slowdown in emerging market sales, as witnessed
through ’11, would substantially undermine the case for a return to mid-
single digit sales growth anytime soon. Emerging markets are critical for
Sanofi and suffering: the 9M’11 group EM growth rate was 9.1% ex-
Genzyme/H1N1, and just 7% in Q3’11 – clearly not enough.
￿
Margin outlook: The knock-on implication of the above is how quickly post-
12’s trough Sanofi will be able to deliver meaningful operating leverage; if
the market starts to take the view there will be little in ’13 (as we are), it’s not
clear why the shares should move beyond the current trading range for the
foreseeable future. At its recent strategy day Sanofi maintained its original
guidance of Sales and EPS in ’13 flat on ’08 before M&A/Genzyme, the latter
of which was guided to be accretive to the tune of €0.75-€1.00 in ’13. That
implies adj. EPS of €6.6 in ’13. As things stand, we think >€6 will be quite an
achievement.
￿
Lantus’ mid-term outlook remains a big problem, with degludec arriving
imminently and Lilly’s biosimilar version (and novel competitor basal) at the
least likely to be on the market in 2014. As per Novo, we think additional
biosimilars are likely (eg from Pfizer). If Lantus growth slows into the single-
digits before 2015 as appears likely, it will not likely hit management’s €5bn
sales target (double 2008) and substantially undermines the overall mid-term
recovery story. The Q3 announcement of a reformulated glargine going
straight to P3 was welcome, but the limited disclosure and likely limited
incremental advantages make it difficult to be overly enthusiastic about the
prospects for significantly extending the franchise life.
￿
The pipeline rehabilitation has begun but the vaunted 6 near-term filings
fail to excite us given the nature of the products concerned. In our view only
mipomersen and aflibercept have potential to meaningfully surprise on the
upside, and we are unlikely to have evidence on that before launch in
H2’12/’13.
￿
Genzyme disaster continues: Our long-standing concerns on the Genzyme
acquisition have been exemplified by the events of H2 – further material
supply setbacks for Fabrazyme in particular and Q3’11 numbers way below
consensus expectations. With the Allston manufacturing facility problems
seemingly insurmountable, approval of the new plant at Framingham is now
absolutely key. Guidance reiterated at Q3 is still for a Q1’12 approval, with
even that leading to an only gradual improvement of supply through H1’12.
If Framingham is not approved, the downside implication for Genzyme
forecasts is material.
￿
Finally, on cash returns, we note our bearish view is partly driven by the
reticence on buybacks (reminiscent of Novartis), with the implication that the
pace of M&A is unlikely to abate. The increase in the divi payout ratio to
50% by ’14 is welcome, but was already in our numbers given the imminent
collapse in adj. EPS (anything other would have implied a dramatic decline in
DPS!).

The bottom line is that even if Sanofi does achieve mid-term sales guidance,
there is a value story that will take years rather than months to play out; if it
does not, the stock is going nowhere. Either way, we expect the shares to
drift through Q4’11/H1’12 at least as a cautious investor base looks for
greater visibility on the growth and margin outlook beyond the trough in ’12.




Page 10
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
We currently sit 8% below ‘12E BBG cons adj. EPS of €6.10 (there is no
company collated consensus to our knowledge).
Upside risks to our view would be near-term initiation of a major buyback
programme, aggressive guidance for sales/margins in ’13 specifically, or
pipeline success (Lemtrada CARE2 Q4’11, further aflibercept data). More
generally, if the market takes the view Sanofi will see sales growth and
margins rebound in ’13, a re-rating through ’12 is likely.

Shire | Sell | Not enough to change our view
Post-Q3 changes:
Sales unch. (AXR up; Resolor down). EBITDA up 2-3% mid-term on slightly higher
margins (partly royalties: with Fosrenol Japan offsetting our longstanding
forecast HIV decline). That translates to 3-4% EPS upgrades mid-term; nothing
this year. NPV/PT up 3% to 1650p (1600p prior).
View:
Post our downgrade to Sell (18/4/11) Shire has slightly outperformed Stoxx
Pharma (SXDP) by 8%, and the market by 24%. That is despite confirming
several of our concerns relative to current valuation in the meantime (HIV
royalties, M&A strategy/consequent likely outcome of the Dermagraft VLU trial,
continued disappointment from launch brands etc). The continued momentum
has been driven partly by continued strength for the human genetic therapies
portfolio (HGT) thanks to further problems at competitor Genzyme, but mostly
by strong Q2/Q3 results. Both the latter delivered beats vs cons driven almost
entirely by stronger than expected sales for genericised Adderall XR. Whilst we
have continued to question the quality of that as a sustainable revenue driver, it
is becoming clear the product is proving longer lived than either we or cons. had
anticipated. Nonetheless, the current valuation is a substantial premium to most
EU pharma peers, and we think it clearly lacks the quality and simplicity of the
story at comparably rated peer Novo (which, amongst other things, returns
100% of FCF to owners vs <10% for Shire). The current 19x P/E multiple is
demanding, in our view, given Sales/EPS growth slowing sharply into the low
teens in ’12 and single digits beyond (on CS forecasts). Given we retain various
concerns on the growth outlook and sustainability of returns we think current
valuation looks modestly excessive, and retain our Sell recommendation. As a
reminder, those concerns/risk factors principally include:

￿
Limited IP security for AXR and the GI franchises
￿
Further investments in expansion (eg EU ADHD) impacting the margin
expansion outlook relative to cons expectations – likely to be crystallised with
Q4 guidance: We continue to sit well below cons forecasts (10% below cons
’13 EBITA), mainly on the margin outlook.
￿
M&A strategy – recent acquisitions continue to look expensive, carry some
risk given the departure from core field of expertise, and are likely to continue
￿
Continued disappointment for launch brands, with Intuniv, Resolor, Firazyr,
all looking likely to suffer mid-term cons revenue downgrades
￿
Modest level of FCF shareholder returns
￿
Genzyme’s Framingham plant approval due Q1’12, plus competitor data
from GSK/Amigal, and the Uplyso approval decision (both Q1’12 probable)
￿
Heightened expectations for the pipeline – and in particular Lialda in
diverticulitis, and Vyvanse outside ADHD.
More AXR upgrades…

Still sellers on potential risks, despite
AXR beats




Page 11
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
￿
Slightly preposterous speculation on Shire as a bid target (eg Bayer)

All the above said, further material beats for AXR, a major delay to Framingham,
or more bullish than expected ’12 guidance with Q4 results are amongst the
near-term risks that might force us to reappraise our view. In particular, now the
Shire has finally filed Replagal for approval in the US approval of Framingham /
Shire’s own Lexington plants in Q1 looks a key swing factor.





Page 12
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
Adj. Quest valuations

Figure 2: Adjusted Quest valuations
Company FX NEW Adj QVPS Date OLD Date VAR
AstraZeneca p 2417 04-Nov-11 2895 04-Feb-11 -17%
Bayer € 80 04-Nov-11 85 16-Mar-11 -6%
GlaxoSmithKline p 1875 04-Nov-11 1644 10-Oct-11 14%
Novartis SFr 68 04-Nov-11 71 09-Mar-11 -4%
Novo Nordisk DKr 485 04-Nov-11 481 14-Mar-11 1%
Roche SFr 185 04-Nov-11 184 16-Feb-11 1%
Sanofi € 60 04-Nov-11 60 21-Mar-11 1%
Shire p 1618 04-Nov-11 1705 11-Apr-11 -5%

Source: Collins Stewart Research

In-line with our sector practice, we have updated our adjusted Quest valuation
for based on our new forecasts. As a reminder, our adjusted Quest valuations
take the default Quest valuations off-line to capitalise for R&D and incorporate
our 10 year forecasts into the modeller scenario (vs 2yr consensus forecasts and
a fade to a historical average for the default modeller). The forecast inputs for
reference are our sales, EBITDA, and other cash transaction assumptions (divi,
buybacks, capex, working capital etc). The adjusted Quest valuations assume an
average corporate asset life of 10 yrs (assumes an ~8 year R&D life). The
changes are noted above. They are marked for AZN which derives high value
from near-term returns given its precipitous forecast decline, and hence suffers
sharply from the passing of time since our last valuation. GSK is increased by
bringing its R&D asset life assumption into line with peers for consistency.

Figure 3: Up/downside to CS NPV and QVPS
-40%
-20%
0%
20%
40%
60%
80%
100%
AZN
Bayer
GSK
Novartis
Novo
Roche
Sanofi
Shire
Upside to NPV
Upside to QVPS
Source: Collins Stewart Research





Page 13
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 4: AZN returns profile Figure 5: BAYN returns profile
-5
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
CFROA
Forecast
CFROC
CFROC
Cost of
capital


-5
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
CFROA
Forecast
CFROC
CFROC
Cost of
capital

Source: Collins Stewart Research

Source: Collins Stewart Research

Figure 6: GSK returns profile Figure 7: NOVN returns profile
-5
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2019
CFROA
Forecast
CFROC
CFROC
Cost of
capital


-5
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2019
CFROA
Forecast
CFROC
CFROC
Cost of
capital

Source: Collins Stewart Research

Source: Collins Stewart Research

Figure 8: NOVO returns profile Figure 9: ROG returns profile
-5
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2019
CFROA
Forecast
CFROC
CFROC
Cost of
capital


-5
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2019
CFROA
Forecast
CFROC
CFROC
Cost of
capital

Source: Collins Stewart Research

Source: Collins Stewart Research

Figure 10: SAN returns profile Figure 11: SHP returns profile
-5
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2019
CFROA
Forecast
CFROC
CFROC
Cost of
capital


-5
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2019
CFROA
Forecast
CFROC
CFROC
Cost of
capital

Source: Collins Stewart Research

Source: Collins Stewart Research






Page 14
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
NPV tables

Figure 12: AZN NPV Figure 13: BAYN NPV Figure 14: GSK NPV
AZN
(USDm, Dec, IFRS)
NPV summary
Risk PV PV
Weight Share p bn £
Crestor 634 8.3
Seroquel 393 5.2
Symbicort
333 4.4
Nexium 265 3.5
Synagis 106 1.4
Pulmicort 104 1.4
Zoladex 102 1.3
Losec/Prilosec 95 1.2
Arimidex 85 1.1
Atacand 84 1.1
Seloken ZOK/Toprol XL 78 1.0
Merrem 64 0.8
Casodex 66 0.9
Onglyza 58 0.8
FluMist 41 0.5
Aptium 41 0.5
AstraTech 4 0.0
All other 1201 15.8
In-line 3754 49
Brilinta (AZD6140) 100% 196 2.6
TC5214 50% 111 1.5
Fostamatinib 50% 106 1.4
Ceftaroline 90% 22 0.3
Dapagliflozin 20% 24 0.3
Zactima 90% 12 0.2
Vimovo
100% 7 0.1
ZD4054 10% 5 0.1
Recentin (AZD2171) 15% 5 0.1
Pipeline
487
6
NPV of products 4241 55.7
Restructuring (net) -245 -3
R&D (net) -553 -7
Capex -359 -5
EV 3083 41
Associates & Investments
10
0
Net financial debt 328 4
Pensions -116 -2
Minorities -9 0
Debt and other 202 3
Group MV 3295 43


Bayer
(EURm, Dec, IFRS)
Pharma: NPV Summary
Risk PV/PV
Weight share bn
Betaseron/feron 3.1 2.5
Kogenate
3.2
2.6
Nexavar total 2.0 1.6
Adalat
2.2
1.8
Yasmine 2.5 2.1
Other 27 23
In-line
40
33
Xarelto: RECORD (surgery) 100% 0.6 0.5
Xarelto: MAGELLAN (medically ill) 0% 0.0 0.0
Xarelto: EINSTEIN (VTE prevention) 65% 1.9 1.6
Xarelto: ROCKET (stroke prevention) 90% 6.2 5.1
Xarelto: ATLAS (ACS) 10% 0.2 0.2
Xarelto total 8.9 7.4
Alpharadin 75% 1.4 1.2
Riociguat 25% 1.1 0.9
VEGFTrapEye 70% 0.4 0.3
AlemtuzumabMS 40% 0.6 0.5
Pipeline 11 9
Portfolio 51 42
Restructuring (net) -1 -1
R&D (net) -6 -5
Capex -2 -2
EV (Pharma) 43 35
Consumer Health 14 12
CropScience 17 14
MaterialScience 15 12
Group EV
89
73
Associates & Investments 1 1
Net financial debt -8 -6
Pensions -9 -7
Minorities 0 0
Debt and other
-17 -14
Group MV 74 61

GSK

(GBPm, Dec, IFRS)
NPV Summary
Risk PV/PV
Weight share £ bn
Advair 293 14.5
Stiefel dermatology 98 4.8
Infanrix, Pediarix 72 3.6
Hepatitis 69 3.4
Flixotide/Flovent 63 3.1
Cervarix 81 4.0
Augmentin 43 2.1
Synflorix 45 2.2
Influenza 34 1.7
Lamictal 34 1.7
Avodart 34 1.7
Seroxat/Paxil (IR, CR) 26 1.3
Tykerb 24 1.2
Pazopanib/Armala 20 1.0
Valtrex 17 0.8
Epzicom/Kivera 17 0.8
Promacta 15 0.8
Ofatumumab 10 0.5
Combivir 12 0.6
Volibris 10 0.5
Flixonase/Flonase 8 0.4
Imigran/Imitrex 9 0.5
Coreg CR 6 0.3
Bonviva 2 0.1
Relenza 1 0.0
Avandia Group 1 0.1
Other 774 38
In-line 1,819 90
Relovair 75% 127 6.3
Belimumab (lympostat B) 75% 42 2.1
LABA/LAMA 50% 27 1.3
Darapladib 10% 11 0.5
Denosumab 100% 21 1.0
Syncria 60% 19 0.9
PRO051 (DMD) 20% 12 0.6
BRAFi 30% 17 0.8
Integrase 25% 14 0.7
MEKi 30% 15 0.7
IPX066 85% 11 0.5
Zoster vaccine 50% 10 0.5
Meningitis (Hib-MenCY-TT, MenACWY-TT) 50% 8 0.4
Amigal 30% 8 0.4
MAGE vaccine 10% 6 0.3
Retigabine 70% 6 0.3
Mosquirix 50% 2 0.1
Pipeline 355 18
NPV of products (pharmaceuticals)
2,174
107
Restructruring (net) -14 -1
R&D (net) -222 -11
Capex -107 -5
EV (pharmaceuticals)
1,831 90
Consumer Care 205 10.1
Corporate & unallocated -172 -8
Group EV
1,865
92
Associates & Investments
27 1
Net financial debt -191 -9
Pensions -60 -3
Minorities -15 -1
Debt and other
-267 -13
Group MV 1,625 80.2
Source: Collins Stewart Research

Source: Collins Stewart Research

Source: Collins Stewart Research





Page 15
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
Figure 15: NOVN NPV Figure 16: NOVO NPV Figure 17: ROG NPV
Novartis
(USDm, Dec, IFRS)
NPV Summary (CHF)
Risk PV/PV
Weight
share
bn
Diovan/Co-Diovan 3.9 9.3
Gleevec/Glivec 3.0 7.2
Gilenya 2.9 6.9
Tasigna 3.0 7.2
Lucentis 2.5 6.0
Afinitor 1.9 4.5
Sandostatin 1.6 3.7
Tekturna/Rasilez 1.2 2.8
Voltaren 1.2 2.9
Neoral/Sandimmun 1.1 2.7
Zometa 0.6 1.5
Galvus 1.1 2.6
Femara 0.6 1.5
Exelon 0.8 1.8
Xolair 0.8 1.8
Exforge 0.5 1.2
Myfortic 0.5 1.3
Aclasta 0.4 0.9
Foradil 0.4 0.9
Trileptal 0.3 0.7
Lotrel 0.0 0.0
Other 11 26
In-line
39
93
QVA149 (QAB149 + NVA23; COPD) 65% 0.8 2.0
ACZ885 (gouty arthritis) 100% 0.8 1.8
indacaterol (COPD) 100% 0.6 1.3
RLX030 (acute heart failure) 40% 0.6 1.3
LCZ696 (heart failure) 40% 0.6 1.3
Valdoxan (depression) 60% 0.4 1.1
PKC412 (acute myeloid leukemia) 50% 0.4 1.0
INCB18424 (myelofibrosis) 50% 0.4 0.9
PTK796 (antibiotic) 65% 0.3 0.8
QMF149 (COPD/asthma) 65% 0.3 0.6
LBH589 (myeloma) 60% 0.3 0.6
SOM230 (cushings) 50% 0.2 0.6
NVA237 (COPD) 45% 0.2 0.5
Pipeline 6 14
NPV of products (Pharma)
45
107
Restructuring (net) -1 -2
R&D (net) -7 -18
Capex -1 -3
EV (Pharma)
36
85
Vaccines 2 5
Sandoz 10 23
Consumer 4 10
Alcon 19 45
Group EV
71
169
Associates & Investments
3
8
Net financial debt -5 -13
Pensions 0 0
Minorities -2 -6
Debt and other
-8 -19
Group MV 67 159


NOVO
(DKKm, Dec, IFRS)
NPV Summary
Risk PV/PV
Weight
share
bn
NovoRapid (NovoLog) 100 58
NovoMix 65 38
NovoSeven 68 40
Levemir 59 35
Victoza 61 36
Norditropin (Growth Hormone) 48 28
Human Insulins (Novolin) 40 23
Protein (insulin)-related sales 17 10
Hormone Replacement Therapy 14 8
Oral antidiabetics 8 5
Diabetes other income/royalties 4 2
Other biopharma products 4 2
Biopharma other income/royalties 2 1
Other 5 3
In-line 494 289
Degludec (ultra long-acting insulin) 75% 42 24
DegludecPlus (dual ultra long-acting insulin)
75% 23 14
rFVIIa (SUBQ, LAR, Topical) 50% 10 6
rFVIII (Hemophilia A) 50% 7 4
rFXIII (congenital deficiency) 50% 1 1
Pipeline
83
49
NPV of products (pharmaceuticals)
577
338
Restructuring (net) -4 -3
R&D (net) -60 -35
Capex -21 -12
Group EV
492
288
Associates & Investments
1 0
Net financial debt 24 14
Pensions -1 -1
Minorities 0.0 0.0
Debt and other
23 13
Group MV 515 302

Roche
(CHFm, Dec, IFRS)
NPV Summary
Risk PV/PV
Weight
share
bn
Avastin 24 20
Herceptin 24 20
MabThera/Rituxan 23 19
Pegasys 6 5
Actemra 7 6
Lucentis 6 5
Tarceva 4 3
NeoRecormon/Epogin 3 2
Xeloda 3 2
Mircera 2 2
Xolair 3 2
Cellcept 2 2
Bonviva/Boniva 1 1
Tamiflu 1 1
Xenical 0 0
All other 51 43
In-line
158
135
trastuzumab DM1 70% 13.9 11.9
R7159 (GA101) 55% 8.9 7.6
omnitarg/pertuzumab 75% 9.0 7.7
dalcetrapib 35% 6.3 5.4
RG3616 (Hedgehog) 35% 2.6 2.2
MetMab 65% 3.5 3.0
RG7204 (BRAFi) 70% 4.4 3.8
RG7128 (HCV PI) 50% 2.5 2.1
aleglitazar 70% 1.8 1.5
RG1678 (Schiz.) 45% 1.8 1.6
ocrelizumab 20% 1.0 0.8
Pipeline 56 48
NPV of products (Pharma)
213
183
Restructruring (net) -2 -2
R&D (net) -28 -24
Capex -6 -5
EV (Pharma) 177 152
Diagnostics 22 19
Group EV
199
171
Associates & Investments
1 0
Net financial debt -28 -24
Pensions -6 -5
Minorities -7 -6
Debt and other
-40 -35
Group MV 160 137
Source: Collins Stewart Research

Source: Collins Stewart Research

Source: Collins Stewart Research





Page 16
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 18: SAN NPV Figure 19: SHP NPV
Sanofi
(EURm, Dec, IFRS)
NPV Summary
Risk PV/PV
Weight
share
bn
Lantus 7.6 10.4
Lovenox 2.6 3.5
Multaq 1.2 1.7
Plavix (consolidated) 1.7 2.3
Cerezyme 1.6 2.2
Renagel 1.2 1.7
Myozyme 1.1 1.5
Allegra 1.0 1.4
Synvisc 0.9 1.3
Aprovel (consolidated) 0.9 1.2
Amaryl 0.8 1.1
Taxotere 0.7 1.0
Depakine 0.7 1.0
Eloxatine 0.9 1.2
Delix/Tritace 0.5 0.7
Stilnox/Ambien/Ambien CR 0.6 0.8
Fabrazyme 0.6 0.9
Xatral 0.3 0.4
Copaxone 0.3 0.5
Actonel (consolidated) 0.2 0.3
Nasacort 0.1 0.1
Pharma Tail 30 41
In-line
56
77
Jevtana 100% 0.8 1.2
AVE0010 50% 0.6 0.8
Genz112638 50% 0.7 1.0
Other vaccines pipeline
(incl. Acambis)
50% 0.5 0.6
Mipomersen 25% 0.4 0.6
Lemtrada 50% 0.7 0.9
AVE8062 50% 0.4 0.5
Aflibercept/VEGF Trap 60% 0.3 0.5
BSI201 50% 0.3 0.4
Otamixaban 10% 0.2 0.3
Teriflunomide 50% 0.2 0.3
AVE5026 70% 0.2 0.3
Pipeline 5 7
NPV of pharma products 61 84
Restructuring (net)
0 0
R&D (net) -10 -14
Capex -4 -5
EV (Pharma) 47 65
OTC/Consumer 8.0 11.0
Merial 2.7 3.7
Generics 4.3 5.9
Polio/Whooping Cough/Hib Vaccines 2.7 3.7
Meningitis/Pneumonia Vaccines 1.6 2.2
Influenza Vaccines 2.8 3.9
Travel and Other Endemics Vaccines 0.9 1.2
Adult Booster Vaccines 0.9 1.3
Other Vaccines 0.4 0.5
Group EV 72 98
Associates & Investments 1 2
Net financial debt -6 -8
Pensions
-3 -4
Minorities 0 0
Debt and other
-9 -12
Group MV 64 88


Shire
(USDm, Dec, US GAAP)
NPV Summary (GBP)
Risk
PV/
PV
Weight share bn
Vyvanse (ADHD) 527 3.1
Replagal 229 1.4
Elaprase 208 1.2
Adderall XR 168 1.0
Lialda/Mezavant 123 0.7
Velaglucerase alfa 112 0.7
Intuniv 103 0.6
Dermagraft 83 0.5
Pentasa 87 0.5
Royalty & Other income 109 0.6
Fosrenol 44 0.3
Resolor 19 0.1
Xagrid 25 0.1
Firazyr 24 0.1
Carbatrol 13 0.1
Equasym 7 0.0
All other products 29 0.2
In-line 1908 11.3
Vyvanse non-ADHD 25% 39 0.2
HGT4510 (DMD) 15% 29 0.2
SPD556/M0003 (GERD) 20% 4 0.0
SPD557/M0002 (ASCITES) 20% 2 0.0
Pipeline
75
0.4
NPV of products (Pharma)
1984
11.8
Restructuring (net) -45 -0.3
R&D (net) -264 -1.6
Capex -117 -0.7
Group EV 1558 9.3
Associates & Investments 18 0.1
Net financial debt 74 0.4
Pensions 0 0.0
Minorities 0 0.0
Debt and other
74
0.4
Group MV 1650 9.8


Source: Collins Stewart Research

Source: Collins Stewart Research






Page 17
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
NPV forecast models

Pharma sales only

Figure 20: AZN pharma sales ($bn) Figure 21: BAYN pharma sales (€bn)
0
5
10
15
20
25
30
35
40
09A 10E 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E
Pipeline upside
Pipeline risk adjust ed
Pat ent s expiring in <5 years
Ot her in-line


0
2
4
6
8
10
12
14
16
18
09E 10E 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E 24E
Pipeli ne upside
Pipeli ne risk adj.
Pat ent s exp. <5 years
Ot her in-line

Source: Collins Stewart Research

Source: Collins Stewart Research

Figure 22: GSK pharma sales (￿bn) Figure 23: NOVN pharma sales ($bn)
0
5
10
15
20
25
30
35
09A 10A 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E
Pipeline upside
Pipeline risk adjust ed
Expiring <5 years
Ot her in-line

0
5
10
15
20
25
30
35
09A 10A 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E
Pipeline upside
Pipeline r isk adjust ed
Pat ent s expiri ng in <5 years
Ot her i n-l ine

Source: Collins Stewart Research

Source: Collins Stewart Research

Figure 24: ROG pharma sales (CHFbn) Figure 25: SAN pharma sales (€bn)
0
10
20
30
40
50
09A 10A 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E


0
5
10
15
20
25
09A 10A 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E

Source: Collins Stewart Research

Source: Collins Stewart Research




Page 18
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
Group sales forecasts

Figure 26: AZN group sales ($bn) Figure 27: BAYN group sales (€bn)
0
5
10
15
20
25
30
35
40
09A 10A 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E
Ot her (Services, Tech)
Pharma


0
5
10
15
20
25
30
35
40
45
50
09A 10A 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E 24E
Mat eri alScience
CropScience
Animal
OTC
Pharma

Source: Collins Stewart Research

Source: Collins Stewart Research

Figure 28: GSK group sales (￿bn) Figure 29: NOVN group sales ($bn)
0
5
10
15
20
25
30
09A 10A 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E
OTC
Vaccines
Pharma

0
10
20
30
40
50
60
70
80
09A 10A 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E
Ot her (Alcon)
OTC
Gener ics
Vacc & Diag
Pharma

Source: Collins Stewart Research

Source: Collins Stewart Research

Figure 30: NOVO group sales (DKrbn) Figure 31: ROG group sales (CHFbn)
0
10
20
30
40
50
60
70
80
90
100
09E 10E 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E
Modern Insulin sales
Vict oza
Ot her Diabet es Sales
Biopharma sales


0
10
20
30
40
50
60
09A 10A 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E
Diagnost ics
Pharma

Source: Collins Stewart Research

Source: Collins Stewart Research





Page 19
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 32: SAN group sales (€bn) Figure 33: SHP group sales ($bn)
0
5
10
15
20
25
30
35
40
09E 10E 11E 12E 13E 14E 15E 16E 17E 18E 19E 20E 21E 22E 23E
Genzyme
Mer ial (100%)
SP- MSD vacc. (50%)
Vaccines
Gener ics
OTC
Pharma


0
1
2
3
4
5
6
7
9 11E 13E 15E 17E 19E 21E 23E 25E
Pipeline upside
Pipeline risk-adj
HGT
Other in-line
Other expir. <5 yrs
Vyvanse
Adderall XR
Source: Collins Stewart Research

Source: Collins Stewart Research





Page 20
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
Forecasts

Figure 34: AZN P&L
AZN
(USDm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Profit
Sales 31,601 32,804 33,269 33,571 30,578 28,416 26,900 25,333
change
7% 4% 1% 1% -9% -7% -5% -6%
CER
3% 7% 0%
EBITDA: underlying 13,171 15,436 15,776 15,488 13,653 12,546 11,742 10,678
margin 41.7% 47.1% 47.4% 46.1% 44.7% 44.2% 43.7% 42.2%
Depreciation -1,183 -893 -1,076 -1,086 -989 -919 -870 -819
EBITA: underlying 11,988 14,543 14,700 14,402 12,664 11,627 10,872 9,858
Amortisation -1,030 -922 -1,097 -1,107 -1,008 -937 -887 - 835
Operating profit: underlying (core) 10,958 13,621 13,603 13,295 11,656 10,690 9,985 9,023
change 16% 24% 0% -2% -12% -8% -7% -10%
CER 9% 23% 0%
margin 34.7% 41.5% 40.9% 39.6% 38.1% 37.6% 37.1% 35.6%
Non-recurring: operating -1,814 -2,078 -2,109 18 -492 -457 -433 -407
Associates (after tax) 0 0 0 0 0 0 0 0
EBIT 9,144 11,543 11,494 13,313 11,164 10,233 9,552 8,616
Net financial charges -463 -736 -517 -400 -120 25 112 135
Pre-tax 8,681 10,807 10,977 12,913 11,044 10,258 9,665 8,750
Tax -2,551 -3,263 -2,896 -2,454 -2,871 -2,667 -2,513 -2,275
rate 29.5% 30.2% 26.4% 19.0% 26.0% 26.0% 26.0% 26.0%
Minorities -29 -23 -28 -33 -28 -26 -25 -22
Net Income
6,101
7,521
8,053
10,427
8,144
7,564
7,127
6,453
Pre-tax: underlying 10,495 12,885 13,086 12,895 11,536 10,715 10,097 9,158
Net income: underlying
7,410
9,159
9,642
10,090
8,508
7,903
7,447
6,755
change 13% 24% 5% 5% -16% -7% -6% -9%
CER 22% 5%
Shares in issue: diluted (adjusted) 1,453 1,449 1,446 1,370 1,292 1,230 1,168 1,106
EPS (GAAP) 4.20 5.19 5.60 7.63 6.34 6.19 6.14 5.87
Core EPS 5.10 6.32 6.71 7.40 6.63 6.47 6.42 6.15
change 17% 24% 6% 10% -10% -2% -1% -4%
CER 23% 5%
DPS 2.00 2.30 2.55 2.77 2.78 2.85 2.95 3.01
payout ratio (reported) 39% 36% 38% 38% 42% 44% 46% 49%
change 14% 15% 11% 9% 0% 2% 4% 2%

Source: Collins Stewart Research

Figure 35: AZN Cash
AZN
(USDm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Cash
EBITDA: reported (incl. restruc.) 11,764 13,630 14,235 15,508 13,177 12,103 11,323 10,283
EBITDA: underlying 12,645 14,289 15,437 15,488 13,653 12,546 11,742 10,678
Tax paid -2209 -2381 -2533 -2454 -2871 -2667 -2513 -2275
Change in working capital -210 1329 82 78 70 51 36 37
Pension adjustments
Special adjustments (inc restructuring) -479 0 -1239 -841 -637
Other -794 -859 -1665 0 0 0 0 0
Operating cash flow 9432 12378 11321 12634 10852 8690 8424 7802
Capex -1095 -962 -791 -798 -727 -676 -640 -602
Net debt interest -541 -526 -467 -400 -120 25 112 135
Free cash flow
7796
10890
10854
11436
10005
8040
7897
7335
Acquisitions -2944 -1738 -1000
Investments -8 -268
Disposals 38 293 1800
Dividends to shareholders -2776 -2977 -3361 -3593 -3648 -3488 -3389 -3335
Share issues/buybacks -610 -2604 -5000 -3000 -3000 -3000 -3000
Other (including currency) 442 -187
Cash generated (used)
1938
7513
2989
3643
3357
1552
1507
1000
Net cash (debt): year end -7174 339 3328 6971 10328 11880 13387 14388

Source: Collins Stewart Research





Page 21
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 36: BAYN P&L
Bayer
(EURm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Profit
Pharma 10029 10467 10908 10742 11245 11921 12465 12771
Consumer Care 5378 5521 6005 6230 6479 6738 7008 7288
HealthCare 15407 15988 16913 16972 17725 18659 19473 20059
CropScience 6382 6510 6830 7455 7847 8243 8602 8860
MaterialScience 9738 7520 10154 10905 11469 11978 12403 12775
Reconciliation 1391 1150 1191 1250 1300 1352 1406 1462
Sales 32918 31168 35088 36581 38341 40233 41884 43156
change 2% -5% 13% 4% 5% 5% 4% 3%
CER 4% -6% 8%
Pharma 3080 3193 3100 3256 3408 3825 4260 4623
Consumer Care 1077 1275 1305 1377 1432 1489 1549 1676
HealthCare 4157 4468 4405 4633 4840 5314 5809 6300
CropScience 1603 1508 1293 1580 1766 1937 2064 2126
MaterialScience 1088 446 1356 1309 1491 1737 1885 1980
Reconciliation 83 50 47 100 105 110 114 118
EBITDA: clean
6931
6472
7101
7622
8202
9098
9873
10524
EBITDA margin 21% 21% 20% 21% 21% 23% 24% 24%
change 2% -7% 10% 7% 8% 11% 9% 7%
CER 4%
D&A: clean -2589 -2700 -2649 -2547 -2669 -2806 -2923 -3009
Operating profit: clean 4342 3772 4452 5075 5532 6293 6950 7515
op. profit margin 13% 12% 13% 14% 14% 16% 17% 17%
change 1% -13% 18% 14% 9% 14% 10% 8%
Adjustments -798 -766 -1722 -785 -100 0 0 0
Operating profit
3544 3006 2730 4290 5432 6293 6950 7515
Affiliates -70 -48 -56 -40 -40 -40 -40 -40
Group EBIT (CS definition) 3474 2958 2674 4250 5392 6253 6910 7475
Net financial charges -1118 -1088 -953 -750 -495 -352 -254 -199
Pre-tax profit 2356 1870 1721 3500 4898 5901 6656 7276
Tax -636 -511 -411 -945 -1322 -1593 -1797 -1964
rate 27% 27% 24% 27% 27% 27% 27% 27%
Minorities -5 0 -9 5 7 8 10 10
Discontinued 4
Net income: GAAP
1719
1359
1301
2560
3582
4316
4868
5322
Pre-tax: core
4659
4152
4897
5586
6361
7336
8153
8815
Net income "core"3439 3003 3465 3916 4534 5249 5841 6322
Shares in issue: period end 764.3 826.0 826.9 826.9 826.9 826.9 786.9 746.9
Shares in issue: average (adjusted) 824.2 826.0 826.9 826.9 826.9 826.9 786.9 746.9
EPS: diluted 2.09 1.65 1.57 3.10 4.33 5.22 6.19 7.13
EPS: underling & diluted 4.17 3.64 4.19 4.74 5.48 6.35 7.06 7.65
change 10% -13% 15% 13% 16% 16% 11% 8%
DPS 1.40 1.40 1.50 1.66 1.92 2.22 2.47 2.68
Payout ratio: "core"34% 39% 36% 35% 35% 35% 35% 35%

Source: Collins Stewart Research

Figure 37: BAYN Cash
Bayer
(EURm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Cash
EBITDA inc ass: underlying
6,861
6,424
7,045
7,582
8,162
9,058
9,833
10,484
Tax paid -812 -636 -897 -945 -1322 -1593 -1797 -1964
Change in working capital -862 810 624 -395 -465 -500 -437 -336
Change in non-current assets 0 0 378 0 0 0 0 0
Change in provisions (incl pensions) -292 -250 -590 -100 -100 -100 -100 -100
Other (inc discontinued) -568 -425 -787 0 0 0 0 0
Cash flow from operations 4,327 5,923 5,773 6,142 6,274 6,865 7,499 8,083
Capex -1,759 -1,575 -1,514 -1,611 -1,645 -1,800 -1,967 -2,120
Net debt interest -719 -548 -464 -400 -145 -2 46 101
Free cash flow 1,849 3,800 3,795 4,131 4,484 5,063 5,579 6,064
Acquisitions -1,617 -354 -31
Investments -390 267 -461
Disposals -41 70 162
Dividends paid -1,126 -973 -1,160 -1,430 -1,560 -1,777 -2,027 -2,135
Shares issued -2000 -2000
Other (incl. FX) -1,784 1,742 -1,074
Decrease in net debt -3,109 4,552 1,231 2,701 2,924 3,286 1,552 1,929
Net debt (net cash)
-14,776
-10,224
-8,993
-6,292
-3,369
-83
1,469
3,398

Source: Collins Stewart Research





Page 22
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 38: GSK P&L
GSK
(GBPm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Profit
Pharmaceutical 17842 20008 19056 18869 19083 19419 19826 19802
Vaccines 2539 3706 4326 3640 4062 4433 4699 4909
Consumer Healthcare 3971 4654 5010 5225 5471 5820 6168 6516
Sales 24352 28368 28392 27735 28617 29672 30693 31228
CER -3% 3% -1%
change 7% 16% 0% -2% 3% 4% 3% 2%
EBITDA: underlying 9523 10651 6587 9895 10447 11043 11566 11912
margin 39.1% 37.5% 23.2% 35.7% 36.5% 37.2% 37.7% 38.1%
Depreciation: underlying -780 -1046 -1146 -1104 -1125 -1149 -1173 -1176
EBITA: underlying 8743 9605 5441 8791 9322 9894 10392 10735
margin 35.9% 33.9% 19.2% 31.7% 32.6% 33.3% 33.9% 34.4%
Amortisation: underlying -484 -348 -313 -309 -327 -347 -365 -377
Pharmaceutical 7427 9475 8751 8185 8672 9182 9619 9893
Consumer Healthcare 832 952 1043 1088 1139 1212 1284 1357
Corporate & unalllocated -1170 -4666 -791 -817 -847 -876 -891
Operating profit: underlying 8259 9257 5128 8482 8995 9547 10028 10359
margin 33.9% 32.6% 18.1% 30.6% 31.4% 32.2% 32.7% 33.2%
change 4.1% 12.1% -44.6% 65.4% 6.0% 6.1% 5.0% 3.3%
CER change -10% -1% -48%
Non-recurring: operating -1118 -832 -1345 -580 0 0 0 0
Associates (pre-tax) 48 179 89 603 0 0 0 0
EBIT 7189 8604 3872 8505 8995 9547 10028 10359
Net financial charges -530 -713 -715 -701 -516 -434 -315 -207
Pre-tax
6659
7891
3157
7804
8479
9113
9712
10152
Tax -1947 -2222 -1304 -2302 -2289 -2369 -2428 -2538
rate 29% 28% 41% 29.5% 27% 26% 25% 25%
Minorites -110 -138 -219 -214 -221 -229 -237 -241
Discontinued 0 0 0 0 0 0 0 0
Net income
4602
5531
1634
5288
5969
6514
7048
7373
Pre-tax: underlying
7782
8726
4505
8384
8479
9113
9712
10152
Net income: underlying 5441 6145 2742 5696 5969 6514 7048 7373
Shares in issue: diluted (adjusted) 5228 5108 5128 4991 4759 4617 4474 4331
EPS (p) 88.6 109.1 32.1 104.1 127.0 142.9 159.6 172.6
EPS (p): underlying 104.7 121.2 53.9 113.3 127.0 142.9 159.6 172.6
change 6% 16% -56% 110% 12% 13% 12% 8%
CER -9% 2% -59%
EPS (p): underlying & diluted
104.1
120.3
53.5
112.0
125.4
141.1
157.5
170.2
change 6% 16% -56% 109% 12% 13% 12% 8%
DPS 57.0 61.0 66.0 70.0 74.2 78.7 83.4 88.4
change 8% 7% 8% 6% 6% 6% 6% 6%
payout ratio 55% 51% 55% 62% 59% 56% 53% 52%

Source: Collins Stewart Research

Figure 39: GSK Cash
GSK
(GBPm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Cash
EBITDA: underlying 9571 10830 6676 10498 10447 11043 1156611912
Tax paid -1850 -1704 -1834 -2302 -2289 -2369 -2428 -2538
Change in working capital 69 -106 1124 345 210 -81 -78 -41
Pension adjustments/provisions -300 -300 1653
Special adjustments (inc restructuring) -900 -406 0 0 0 0
Other 232 44 1012
Operating cash flow 7721 7864 8631 8134 8367 8593 9060 9333
Capex -1437 -1418 -1077 -1015 -1044 -1072 -1130 -1165
Net debt interest -410 -690 -668 -701 -516 -434 -315 -207
Free cash flow
5874
5756
6886
6418
6807
7086
7614
7962
Acquisitions -1086 -2792 -912
Investments -96 -315 -340
Disposals 215 48 245 600
Dividends to shareholders -2929 -3003 -3205 -3464 -3341 -3435 -3529 -3622
Share issues (buybacks) -3706 -2300 -2000 -2000 -2000 -2000
Other (including currency) -2406 1035 -2089
Cash generated (used) -4134 729 585 1255 1466 1651 2085 2340
Net cash (debt): year end
-10173
-9444
-8859
-7604
-6138
-4487
-2402
-63

Source: Collins Stewart Research





Page 23
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 40: NOVN P&L
Novartis
(USDm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Profit
Please expand '10A to see the restated divisional 10 numbers; note total group numbers are unaffected
Pharmaceuticals 26331 28548 30558 32269 30593 29102 2920428442
Vaccines and Diagnostics 1759 2424 2918 1771 2261 2731 3221 3716
Sandoz 7557 7493 8518 9599 10322 11045 11929 13121
Consumer Health 5812 5812 6204 4759 5023 5274 5538 5815
Alcon 2426 9979 10778 11640 12455 13326
Other
Sales 41459 44277 50624 58376 58976 59791 62346 64421
change 9% 7% 14% 15% 1% 1% 4% 3%
CER 5% 11% 14%
EBITDA: underlying
(ex associates) 11514 12678 15369 17471 18064 18208 19067 20126
margin 27.8% 28.6% 30.4% 29.9% 30.6% 30.5% 30.6% 31.2%
Depreciation: underlying -1205 -1241 -1363 -1618 -1648 -1684 -1765 -1838
Pharmaceuticals 8249 9068 9909 10054 9844 9216 9248 9456
Vaccines and Diagnostics 309 719 1066 35 237 356 500 624
Sandoz 1421 1395 1685 1915 2145 2295 2448 2659
Consumer Health 1125 1118 1253 942 981 1030 1081 1150
Alcon 852 3450 3891 4318 4745 5144
Other (Corporate) -795 -863 -759 -544 -682 -691 -721 -745
Core operating income (EBITA) 10309 11437 14006 15853 16416 16524 17302 18288
margin 24.9% 25.8% 27.7% 27.2% 27.8% 27.6% 27.8% 28.4%
change 11% 11% 22% 13% 4% 1% 5% 6%
CER 24%
Amortisation: underlying -1091 -1025 -1135 -3102 -3090 -3061 -3063 -3072
Operating income: underlying
9218
10412
12871
12751
13327
13463
14239
15216
margin 22.2% 23.5% 25.4% 21.8% 22.6% 22.5% 22.8% 23.6%
Non-recurring: operating & other -250 -430 -1345 -392
Associates 441 293 804 518 528 577 596 628
EBIT (GAAP Op. Profit + Associates) 9409 10275 12330 12877 13855 14040 14835 15844
margin 22.7% 23.2% 24.4% 22.1% 23.5% 23.5% 23.8% 24.6%
change 31% 9% 20% 4% 8% 1% 6% 7%
Net financial charges
94
-353
-628
-747
-493
-247
-133
35
Pre-tax 9503 9922 11702 12130 13362 13793 14702 15879
Tax -1336 -1468 -1989 -1880 -2071 -2138 -2279 -2461
rate 14.1% 14.8% 17.0% 15.5% 15.5% 15.5% 15.5% 15.5%
Minorites -38 -54 -175 -110 -20 -20 -20 -20
Discontinued 70 0 0 0 0 0 0 0
Net income
8199
8400
9538
10140
11271
11635
12403
13398
Pre-tax: core
11242
12135
14419
15814
16452
16854
17765
18951
Net income: core 9431 10213 11767 13168 13882 14222 14991 15994
Shares in issue: diluted (adjusted) 2284 2277 2307 2379 2420 2373 2327 2281
EPS (GAAP, basic) 3.62 3.70 4.3 4.26 4.70 4.95 5.39 5.94
change -30% 2% 16% 0% 10% 5% 9% 10%
Core EPS basic 4.16 4.50 5.15 5.53 5.79 6.05 6.51 7.09
change 14% 8% 14% 7% 5% 4% 8% 9%
CER 15%
Core EPS (underlying & diluted) 4.13 4.50 5.15 5.48 5.74 5.99 6.44 7.01
DPS (CHF) 2.00 2.10 2.20 2.20 2.31 2.48 2.75 3.09
change 25% 5% 5% 0% 5% 8% 11% 12%
DPS (USD) 1.89 1.92 2.11 2.65 2.78 2.99 3.31 3.72
change 34% 2% 10% 26% 5% 8% 11% 12%
payout ratio 48% 47% 43% 48% 48% 49% 51% 52%

Source: Collins Stewart Research





Page 24
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 41: NOVN Cash
Novartis
(USDm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Cash
EBITDA: underlying 11955 12971 16173 17989 18593 18785 19663 20754
Tax paid -1939 -1623 -2616 -1880 -2071 -2138 -2279 -2461
Change in working capital -630 688 1762 -200 -132 -180 -564 -458
Pension adjustments
Special adjustments (inc restructuring) 0 -300 -1281 0 0 0 0 -973
Other 249 496 29
Operating cash flow 9635 12232 14067 15909 16389 16467 16820 16862
Capex -2106 -1887 -1678 -1935 -1955 -1982 -2067 -2135
Net debt interest 134 -41 -355 -747 -493 -247 -133 35
Free cash flow 7663 10304 12034 13227 13941 14238 14620 14762
Acquisitions -1289 -925 -26666 -4000
Investments -10447 -11633 12631
Disposals 169 226 581
Dividends to shareholders -3345 -3941 -4486 -4824 -6418 -6599 -6962 -7557
Share issues (buybacks) -473 224 -311 -2134 -2000 -2000 -2000 -2000
Other (including currency) -932 10453 -12097
Cash generated (used) -8654 4708 -18314 2268 5523 5639 5658 5204
Net cash (debt): year end
-1247
3461
-14853
-12585
-7062
-1422
4236
9441

Source: Collins Stewart Research





Page 25
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 42: NOVO P&L
NOVO
(DKKm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Profit
Diabetes care 33356 37702 45710 49767 54561 59807 64809 68136
Biopharma 12197 13576 15066 15737 16687 17628 18154 18419
Sales 45553 51278 60776 65504 71248 77435 82962 86555
CER 12% 11% 13%
change 9% 13% 19% 8% 9% 9% 7% 4%
EBITDA: underlying
(est.) 15140 17439 21358 24234 26651 29042 31004 32273
margin 33.2% 34.0% 35.1% 37.0% 37.4% 37.5% 37.4% 37.3%
Depreciation: underlying -2320 -2398 -2406 -2595 -2823 -3070 -3291 -3435
EBITA: underlying (est.) 12820 15041 18952 21639 23828 25972 27713 28838
margin 28.1% 29.3% 31.2% 33.0% 33.4% 33.5% 33.4% 33.3%
Amortisation & impairment: underlying -122 -108 -61 -66 -72 -78 -83 -87
Diabetes care 7894 8510 12102 14197 15903 17565 19016 19975
Biopharma 4804 6423 6789 7376 7853 8330 8614 8776
Corporate & unalllocated
Operating profit: underlying 12698 14933 18891 21573 23756 25895 27630 28751
margin 27.9% 29.1% 31.1% 32.9% 33.3% 33.4% 33.3% 33.2%
change 24% 18% 27% 14% 10% 9% 7% 4%
CER change 15% 16%
Non-recurring: operating & other -325
Associates (after tax) -124 -55 1070 0 0 0 0 0
EBIT 12249 14878 19961 21573 23756 25895 27630 28751
Net financial charges 446 -890 -1675 -250 82 560 660 440
Pre-tax
12695
13988
18286
21323
23838
26454
28290
29191
Tax -3050 -3220 -3883 -4904 -5483 -6085 -6507 -6714
rate 24% 23% 21% 23% 23% 23% 23% 23%
Minorites
Discontinued
Net income 9645 10768 14403 16419 18355 20370 21783 22477
Pre-tax: underlying 13020 13988 18286 21323 23838 26454 28290 29191
Net income: underlying 9892 10768 14403 16419 18355 2037021783 22477
change 4% 9% 34% 14% 12% 11% 7% 3%
Shares in issue: diluted (adjusted) 621 604 585 570 550 529 508 487
EPS (p): basic 15.66 17.96 24.81 29.03 33.68 38.86 43.28 46.59
EPS (p): diluted 15.54 17.81 24.60 28.80 33.40 38.53 42.8946.16
change 15% 15% 38% 17% 16% 15% 11% 8%
CER
EPS (p): underlying & diluted
15.9
17.8
24.60
28.8
33.4
38.5
42.9
46.2
CER
change 5% 12% 38% 17% 16% 15% 11% 8%
DPS 6.0 7.5 10.0 11.5 13.4 15.4 17.2 18.5
payout ratio 38% 42% 41% 40% 40% 40% 40% 40%

Source: Collins Stewart Research

Figure 43: NOVO Cash
NOVO
(DKKm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Cash
EBITDA: underlying 15016 17384 22428 24234 26651 29042 31004 32273
Tax paid -3172 -1998 -3436 -4904 -5483 -6085 -6507 -6714
Change in working capital -562 -224 254 217 -1321 -1423 -1271 -826
Pension adjustments
Special adjustments (inc restructuring)
Other 1172 30 433
Operating cash flow 12454 15192 19679 19546 19847 21535 23226 24733
Capex -1772 -2632 -3376 -2729 -2968 -3226 -3456 -3606
Net debt interest 409 186 -34 -250 82 560 660 440
Free cash flow 11091 12746 16269 16567 16960 18868 20430 21567
Acquisitions 0
Investments -94 -433 -521
Disposals 18 1 1223
Dividends to shareholders -2795 -3650 -4400 -5805 -6515 -7281 -8078 -8635
Share issues (buybacks) -4717 -6395 -9498 -12000 -12000-12000 -12000 -12000
Other (including currency) -1671 1325 -684
Cash generated (used) 1832 3594 2389 -1237 -1555 -413 352 931
Net cash (debt): year end
7844
11438
13827
12590
11035
10622
10974
11905

Source: Collins Stewart Research





Page 26
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 44: ROG P&L
Roche
(CHFm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Profit
Pharmaceuticals 35961 38996 37058 32639 33815 35168 3677838414
Diagnostics 9656 10055 10415 9648 10005 10465 10923 11405
Sales 45617 49051 47473 42287 43820 45633 47701 49819
CER 6% 10% 0%
CER ex-Tamiflu
5%
change -1% 8% -3% -11% 4% 4% 5% 4%
EBITDA: underlying
16597
18028
18517
17333
18157
19105
19973
20900
margin 36.4% 36.8% 39.0% 41.0% 41.4% 41.9% 41.9% 42.0%
Depreciation -1704 -1981 -1926 -1734 -1796 -1872 -1956 -2043
Pharmaceuticals 14601 13850 14525 15290 15990 16741
Diagnostics 2202 2094 2192 2314 2415 2522
Other -387 -345 -357 -372 -389 -406
Core op. profit
(EBITA, 'core' >'10) 14893 16047 16591 15599 16360 17232 18016 18857
change -4% 8% 2% -6% 5% 5% 5% 5%
CER 7%
margin 32.6% 32.7% 34.9% 36.9% 37.3% 37.8% 37.8% 37.9%
Amortisation -997 -1035 -619 -583 -610 -642 -671 -701
Underlying operating profit 13896 15012 15972 15016 15750 16590 17346 18156
Non-recurring 28 -2735 -2486 -1404 -600 0 0 0
Associates (after tax; pretax >Q410) 1 0 -3 0 0 0 0 0
EBIT 13925 12277 13483 13612 15150 16590 17346 18156
Net financial charges 236 -2045 -2272 -1400 -900 -490 -233 -302
Pre-tax 14161 10232 11211 12212 14250 16100 17113 17854
Tax -3317 -1722 -2320 -2564 -2993 -3381 -3594 -3749
rate 23% 17% 21% 21% 21% 21% 21% 21%
Minorites -1875 -726 -225 -210 -245 -277 -294 -307
Discontinued 0 0 0 0 0 0 0 0
Net income
8969
7784
8666
9437
11013
12442
13225
13798
Pre-tax: underlying 14133 13344 14316 13616 14850 16100 17113 17854
Net income: underlying & diluted
9507
10470
10955
10546
11487
12442
13225
13798
Shares in issue: diluted (adjusted) 861 859 857 855 852 852 852 839
EPS basic 10.4 9.07 10.1 11.1 13.0 14.6 15.6 16.5
change -8% -13% 11% 9% 17% 13% 6% 6%
Core EPS: diluted
11.04
12.19
12.78
12.51
13.48
14.60
15.52
16.44
change -7% 10% 5% -2% 8% 8% 6% 6%
CER 2% 20% 10%
DPS 5.00 6.00 6.60 6.60 7.15 7.78 8.31 8.85
payout ratio 45% 49% 52% 53% 53% 53% 54% 54%
change 9% 20% 10% 0% 8% 9% 7% 6%

Source: Collins Stewart Research

Figure 45: ROG Cash
Roche
(CHFm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Cash
EBITDA: underlying 16598 18028 18514 17333 18157 19105 19973 20900
Tax paid -3514 -1767 -2789 -2564 -2993 -3381 -3594 -3749
Change in working capital -524 410 -1266 -461 -463 -547 -624 -640
Pension adjustments 490 -334
Special adjustments (inc restructuring) -1061 -709 0 0 0 0 0
Other 188 915 217
Operating cash flow 12177 16877 14342 14308 14701 15176 15755 16511
Capex -3139 -2984 -2671 -2379 -2465 -2567 -2684 -2803
Net debt interest 390 -443 -1872 -1400 -900 -490 -233 -302
Free cash flow
9428
13450
9799
10528
11336
12119
12838
13406
Acquisitions -3422 -52714 -843
Investments 6712
Disposals 69 112
Dividends to shareholders -5223 -4395 -5160 -5643 -5610 -6075 -6614 -7065
Share issues (buybacks) -844 -4025
Other (including currency) -662 3110 -5910
Cash generated (used) -654 -40549 4710 4885 5726 6043 6224 2316
Net cash (debt): year end
16682
-23867
-19157
-14272
-8546
-2503
3722
6037

Source: Collins Stewart Research





Page 27
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 46: SAN P&L
Sanofi
(EURm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Profit
Pharmaceuticals 24707 23381 22825 21063 19431 18567 18070 16965
OTC 1430 2217 2698 3011 3252 3512 3723
Generics 1012 1534 1715 1985 2263 2535 2788
Vaccines 2861 3483 3808 3578 3851 4137 4387 4546
Genzyme 2387 3523 4015 4368 4654
Merial 2021 2054 2104 2144 2175
Sales 27568 29306 30384 33463 33856 34337 35016 34850
change -1.7% 6.3% 3.7% 10.1% 1.2% 1.4% 2.0% -0.5%
CER 3.7% 5.3% -0.8%
CER constant structure
4.0%
-2.7%
EBITDA: underlying 10381 12302 12630 12744 11993 12261 12569 12511
margin 37.7% 42.0% 41.6% 38.1% 35.4% 35.7% 35.9% 35.9%
Depreciation: underlying -842 -929 -1167 -1285 -1300 -1319 -1345 -1339
Pharmaceuticals (inc. OTC, generics) 10242 10214 9668 8771 8886 9071 8956
Vaccines 1133 1359 1163 1279 1394 1479 1532
Merial 629 643 663 676 685
Corporate & unallocated -2 -110 -1 -1 -1 -1 -1
EBITA: underlying 9539 11373 11463 11459 10692 10942 1122411173
change 19% 1% 0% -7% 2% 3% 0%
margin 34.6% 38.8% 37.7% 34.2% 31.6% 31.9% 32.1% 32.1%
Clean associates (post-tax)
Minorities
"Business operating income"9,747 11,962 12,660 12,314 10,863 10,950 11,178 11,112
change 23% 5% -3% -12% 1% 2% -1%
CER change 1%
"Business" op. margin 40.8% 41.7% 36.8% 32.1% 31.9% 31.9% 31.9%
Amortisation: underlying
-163
-220
-202
-200
-202
-205
-209
-208
Operating profit: underlying (est.) 9376 11153 11261 11259 10490 10737 11014 10964
Non-recurring & PPA -5368 -4787 -5502 -4967 -3600 -3600 -3600 -3600
EBIT reported (IFRS, pre-associates) 5961 6492 7092 7342 7624 7573
Total associates (after tax, adjustments) 812 989 1364 1085 396 210 136 103
EBIT (post-associates) 4820 7355 7325 7576 7488 7552 7760 7676
Net financial charges -232 -300 -362 -395 -184 -132 -104 -72
Pre-tax
4588
7055
6963
7181
7304
7421
7656
7604
Tax -682 -1364 -1242 -1463 -1934 -2019 -2106 -2100
rate 15% 19% 18% 20% 26% 27% 28% 28%
pre-associates tax rate 18% 22% 22% 24% 28% 28% 28% 28%
Minorites -441 -426 -256 -250 -225 -203 -182 -164
Discontinued 0 0 0 0 0 0 0 0
Net income 3465 5265 5466 5468 5144 5199 5368 5340
Pre-tax: adjusted 9956 11762 12465 12148 10904 11021 1125611204
"Business Net income"
7313
8629
9215
8896
7700
7755
7924
7896
change 18% 7% -3% -13% 1% 2% 0%
CER 13% 3%
Shares in issue: diluted (adjusted) 1311 1307 1308 1370 1365 1340 1305 1271
EPS: IFRS reported 2.65 4.03 4.18 4.10 3.78 3.89 4.12 4.21
"Business EPS"5.59 6.61 7.06 6.69 5.65 5.80 6.09 6.22
change 18% 7% -5% -15% 3% 5% 2%
CER 13% 3%
Business EPS diluted 5.58 6.60 7.04 6.67 5.64 5.79 6.07 6.21
change 18% 7% -5% -15% 3% 5% 2%
DPS 2.20 2.40 2.50 2.63 2.73 2.84 2.95 3.07
change 9% 4% 5% 4% 4% 4% 4%
payout ratio 39% 36% 35% 39% 48% 49% 49% 49%

Source: Collins Stewart Research





Page 28
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 47: SAN Cash
Sanofi
(EURm, Dec, IFRS)
08 09 10 11E 12E 13E 14E 15E
Cash
EBITDA + assoc: underlying 11193 13291 13994 13829 12388 12471 12705 12614
Tax paid -682 -1364 -1242 -1463 -1934 -2019 -2106 -2100
Change in working capital -1 -1254 -432 99 -101 -124 -175 43
Pension adjustments
Special adjustments (inc restructuring) 82 -565 -1372 0 0 0 0 -176
Other -1837 -1293 -912 -1044 -1044 -1044 -1044 -1044
Operating cash flow 8755 8815 10036 11420 9309 9284 9380 9337
Capex -1606 -1785 -1573 -1732 -1753 -1778 -1813 -1804
Net debt interest -232 -300 -362 -395 -184 -132 -104 -72
Free cash flow 6917 6730 8101 9293 7372 7375 7463 7460
Acquisitions/CVR payout -5563 -1659 -13935 -300 -300 -600
Investments -667 -5 -74
Disposals 119 85 131
Dividends to shareholders -2708 -2878 -3131 -1372 -3589 -3719 -3797 -3844
Share issues (buybacks) -1227 26 -321 -500 -500 -2000 -1533 -1808
Other (including currency) 16 -556 -933
Cash generated (change in net debt) 2450 -2161 2114 -6514 2983 1356 1533 1808
Net cash (debt): year end
-1697
-3858
-1744
-8258
-5275
-3919
-2386
-578

Source: Collins Stewart Research





Page 29
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

Figure 48: SHP P&L
Shire
(USDm, Dec, US GAAP)
08 09 10 11E 12E 13E 14E 15E
Profit
Sales 3022 3008 3471 4214 4746 5090 5390 5514
CER 2% 16%
change 24% 0% 15% 21% 13% 7% 6% 2%
EBITDA: underlying 1035 982 1165.0 1420 1598 1727 1849 1898
margin 34.3% 32.7% 33.6% 33.7% 33.7% 33.9% 34.3% 34.4%
change 49.1% -5.1% 18.6% 21.9% 12.5% 8.0% 7.1% 2.6%
Depreciation -77 -93 -93.5 -114 -128 -137 -145 -149
Adj. op. income (underlying EBITA) 958 889 1071.5 1307 1471 1590 1704 1749
margin 31.7% 29.6% 30.9% 31.0% 31.0% 31.2% 31.6% 31.7%
change 52.1% -7.2% 20.5% 22.0% 12.5% 8.1% 7.2% 2.7%
Non-recurring: operating -546 -269 -277 -202 -173 -186 -197 -201
Associates (after tax) 2 -1 1.4 1 1 1 1 1
EBIT (GAAP plus ass.) 414 619 795.5 1107 1299 1405 1508 1549
change
-130%
49%
28%
39%
17%
8%
7%
3%
Net financial charges -146 23 -25 -21 -4 36 71 117
Pre-tax 268 642 771 1086 1294 1441 1579 1666
Tax -98 -139 -183 -250 -298 -331 -363 -383
rate 37% 22% 24% 23% 23% 23% 23% 23%
Minorites 4 0.2 0 0 0 0 0 0
Discontinued -17.6 -12
Net income 156 492 588 836 997 1109 1216 1283
Net income: underlying & convertible adj.171 525 622 869 1030 1143 1216 1283
Pre-tax: underlying 936 856 1037 1266 1468 1627 1776 1868
Net income: underlying & adjusted 744 676 832 1008 1164 1286 1367 1438
change 44% -9% 23% 21% 15% 11% 6% 5%
ADS (millions) 193 194 197 198 198 198 198 198
Shares in issue: diluted and adjusted 578 581 590 594 594 594 594 594
EPS: GAAP, diluted 0.29 89.70 1.05 1.45 1.68 1.87 2.05 2.16
EPS: underlying & diluted (est.) 1.29 1.16 1.41 1.70 1.96 2.16 2.30 2.42
EPADS: underlying & diluted
3.86
3.49
4.23
5.09
5.88
6.49
6.91
7.26
change 36% -10% 21% 20% 15% 11% 6% 5%

DPS 0.10 0.114 0.13 0.17 0.21 0.26 0.29 0.33
payout ratio 8% 10% 9% 10% 11% 12% 13% 14%
change 15% 15% 31% 25% 19% 15% 14%

Source: Collins Stewart Research

Figure 49: SHP Cash
Shire
(USDm, Dec, US GAAP)
08 09 10 11E 12E 13E 14E 15E
Cash
EBITDA: underlying 1038 982 1166 1422 1600 1728 1850 1899
Tax paid -117 -223 -329 -250 -298 -331 -363 -383
Change in working capital 28 -47
36 61 44 28 25 10
Pension adjustments
R&D "one-offs" (milestones etc) -7
Special adjustments (inc restructuring)
Other -28 -47 82
Operating cash flow
914
665 955 1233 1346 1425 1512 1526
Capex -236 -254 -327 -238 -268 -287 -304 -311
Net debt interest -191 -38 -33 -37 -4 36 71 117
Free cash flow
486
373 596 959 1074 1174 1278 1332
Acquisitions -524 -486 -739
Investments 8 -3
Disposals 7 4
Dividends to shareholders -47 -54 -62 -77 -102 -127 -152 -175
Share issues (buybacks)
Other (including currency) -495
Cash generated (used) -565 284 81 142 972 1046 1126 1157
Net cash (debt): year end
-896
-612
-531
-388 584 1630 2756 3913

Source: Collins Stewart Research





Page 30
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
Sector data

Sector performance

Figure 50: Sector, 1yr, FX-adjusted into € Figure 51: Sector, 5yr, FX-adjusted into € (ex-Novo)
60
80
100
120
140
160
04/11/2010 04/02/2011 04/05/2011 04/08/2011 04/11/2011
AZN
BAYN
GSK
NOVN
SAN
ROG
STOXX 600
NOVO
SHP


40
60
80
100
120
140
160
180
03
/1
1/20
06
03
/0
2/2007
03
/0
5/20
07
03
/0
8/20
07
03
/1
1/2007
03/02/2008
03/05/2008
03/08/2008
03
/11/
20
08
03
/0
2/20
09
03/05/2009
03
/08/
20
09
03
/1
1/20
09
03
/0
2/20
10
03
/05/
20
10
03
/08/
20
10
03
/1
1/20
10
03
/0
2/2011
03
/05/
20
11
03
/0
8/20
11
03
/1
1/2011
AZN
BAYN
GSK
NOVN
SAN
ROG
STOXX 600
SHP

Source: Collins Stewart Research

Source: Collins Stewart Research







Page 31
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
Sector valuations

Figure 52: Sector multiples
EV
Multiples
RecData€bn11E12E13E14E15E3yr5yr11/3yr11/5yr11E12E11E12E11E12E11E12E11E12E11E12E11E12E
Pharma majors (ranked by '12E PE)
AstraZeneca
Hold
3000
3295
2417
2974
RSCH
51
6.4
7.2
7.4
7.4
7.8
-1%
-3%
-5.2
-2.2
17.6%
16.3%
4.4
4.4
4.1
4.1
1.9
1.8
5.8%
5.8%
46.1%
44.7%
25.8
18.9
Sanofi-Aventis
Rec:
48
64
60
49
RSCH
54
7.4
8.7
8.5
8.1
7.9
-6%
-3%
-1.2
-2.6
13.7%
10.9%
7.4
7.6
6.6
6.8
2.5
2.4
5.3%
5.5%
38.1%
35.4%
19.3
18.6
Bayer
Buy
64
74
80
45
RSCH
39
9.5
8.2
7.1
6.4
5.9
15%
13%
0.6
0.7
11.1%
12.1%
10.2
8.8
6.8
5.9
1.4
1.3
3.7%
4.3%
20.8%
21.4%
17.2
13.6
Pfizer
19
Quest
112
8.5
8.3
12.6%
12.5%
6.0
6.5
2.4
2.5
4.2%
4.6%
17.6
18.6
Merck & Co
33
Quest
74
8.9
8.5
12.2%
12.7%
7.0
7.2
2.2
2.2
4.6%
4.8%
14.1
11.6
Novartis
Hold
55
67
68
50
RSCH
110
10.3
9.8
9.4
8.7
8.0
5%
6%
2.0
1.6
9.9%
10.3%
9.7
9.2
8.8
8.4
2.6
2.6
5.3%
5.6%
29.9%
30.6%
12.9
11.9
Amgen
57
Quest
32
11.0
10.2
8.4%
9.0%
11.5
10.8
3.0
2.7
1.2%
2.0%
26.0
25.2
Eli Lilly
38
Quest
31
8.9
10.3
11.6%
10.1%
8.0
9.4
1.8
1.9
5.1%
5.1%
15.0
14.4
Abbott
53
Quest
63
11.4
10.6
10.5%
11.4%
11.4
10.5
2.3
2.1
3.6%
4.0%
17.5
17.7
Roche
Buy
160
160
185
144
RSCH
123
11.5
10.6
9.8
9.2
8.7
5%
9%
2.5
1.3
8.6%
9.3%
9.3
8.5
8.3
7.6
3.4
3.2
4.6%
5.0%
41.0%
41.4%
14.7
13.5
GlaxoSmthKline
Buy
1625
1625
1875
1379
RSCH
60
12.3
11.0
9.8
8.8
8.1
38%
47%
0.3
0.3
9.3%
10.4%
9.1
8.1
8.1
7.2
2.9
2.6
5.1%
5.4%
35.7%
36.5%
15.3
15.2
Johnson & Johnson
65
Quest
124
13.0
12.3
7.5%
8.2%
12.5
11.7
2.8
2.5
3.5%
3.7%
18.4
15.9
BMS
32
Quest
37
14.3
15.7
7.1%
6.4%
9.0
12.3
2.4
2.8
4.1%
4.1%
24.2
19.5
Sector average
10.3
10.1
8.7
8.1
7.7
10.8%
10.7%
8.9
8.8
2.4
2.3
4.3%
4.6%
35.3%
35.0%
18.3
16.5
Merck KGaA
61
Quest
17
8.8
8.1
8.9%
9.8%
9.2
7.6
1.7
1.6
2.2%
2.5%
16.9
15.9
Actelion
33
Quest
2
10.4
10.2
8.8%
9.3%
10.9
10.5
1.5
1.4
2.5%
2.6%
16.3
14.7
Shire
Sell
1650
1650
1618
2007
RSCH
13
19.0
16.4
14.9
14.0
13.3
15%
11%
1.2
1.7
5.4%
6.1%
13.9
11.7
12.8
10.7
4.3
3.6
0.5%
0.7%
33.7%
33.7%
35.8
36.3
Novo Nordisk
Sell
515
515
485
594
RSCH
247
20.6
17.8
15.4
13.8
12.9
16%
23%
1.3
0.9
4.9%
5.2%
15.4
13.5
13.7
12.1
5.1
4.5
1.9%
2.2%
37.0%
37.4%
21.3
20.2
UCB
34
Quest
7
19.4
19.4
4.5%
4.7%
13.2
12.9
2.5
2.4
2.2%
2.2%
17.9
17.3
Sector average
15.6
14.4
15.1
13.9
13.1
6%
7%
12.5
11.2
3.0
2.7
2%
2%
35%
36%
21.6
20.9
Target
price
Local price
Adj. P/E
Adj.
QVPS
CLST
NPV
EPS Growth
PEG
EV/Sales
CFROA
Dividend Yield
EBITDA margin
FCF yield
EV/EBITA
EV/EBITDA



Emmanuel Papadakis +44 207 5238416

Source: Collins Stewart Research





Page 32
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011
Disclosures
Collins Stewart produces different types of research product including, among others, fundamental equity analysis (which may contain fundamental and/or trading recommendations), technical
analysis, Quest
tm
, and Investment Companies analysis. Recommendations contained in one type of research product may differ from recommendations contained in other types of research
product, whether as a result of differing time horizons, methodologies or otherwise; it is possible that individual employees of Collins Stewart have different perspectives to this publication.
For an explanation of our European fundamental equity analysis recommendation policy please follow this link:
http://www.collinsstewart.com/csr/recommendationpolicy.pdf
Fundamental Research Recommendations issued by Collins Stewart Europe Limited in Q3 2011
Recommendations Buys

Sells

Hold/Neutral

Percentage of Total 65%

9%

24%

Percentage of which in Corporate Client stocks 10%

0%

1%

Target price & recommendation history
Collins Stewart target prices are produced by fundamental equity analysts. The target price employed by European equity analysts reflects the analyst's expectation of the share price over a
specified time horizon (9 months if not specified). The achievement of any target price may be impeded by general market and macroeconomic events and trends, and by other risks related to the
company or the market, and may not occur if, for instance, the company’s earnings differ from our estimates.
The target prices displayed in our fundamental equity research publications may differ from the target prices displayed in our technical analysis publications as they are based on different
methodologies. Similarly, the target prices displayed in our fundamental equity research publications may differ from the Quest
tm
value per share, although the latter may be an input into the
former. The Quest
tm
value per share is formulated using the Quest
tm
methodology, a summary of which can be found at
www.csquest.com.
The chart(s) below show(s) the history of share prices, target prices and fundamental equity analysis recommendations for companies subject of this report.




Page 33
￿
Pharmaceuticals & Biotechnology
￿
08 November 2011

____
Stock price ____ Target price
Source: Thomson Reuters and Collins Stewart Research
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No specific disclosures.
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