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Americas: Healthcare: Specialty
Pharmaceuticals: Trimming price targets to
reflect higher risk premium
Rationalizing price targets in light of higher risk premium
Though the push for healthcare reform by the Obama Administration is consistent with
our view, we expect further volatility as efforts to reform continue through the upcoming
months. In light of the ongoing uncertainty, we believe the higher risk premium implied
by the recent sell off in healthcare may persist. Thus we are trimming our price targets
between -4% and -13% across our specialty pharma coverage to reflect this view (includes
CEPH, ENDP, KG, SEPR, WCRX).  We maintain our Neutral coverage view on
specialty pharma, balancing challenging industry fundamentals against valuation that
already sits at historical lows. The prospect of increased government involvement in
healthcare is one of many challenges facing the pharmaceutical industry, including rising
reimbursement pressure, a risk-averse FDA, rising intellectual property uncertainty, and a
looming patent hole. We see the specialty pharmaceutical industry as disproportionately
exposed to these pressures given a licensing and acquisition-based R&D model, core
competencies in sales and marketing, and a focus on incremental innovation. Specialty
pharmaceutical industry challenges have not been lost on the market with sector multiples
sitting at historical lows. We believe market skepticism is appropriate, but find it hard to
argue for significant downside at current levels. We see opportunities in companies that
are better positioned to succeed in a challenging environment (Buy rated CEPH), and
stocks where valuation has contracted disproportionately to fundamental challenges (Buy
rated KG, upgraded as of March 13, 2009).
The Goldman Sachs Group Inc. does and seeks to do business with companies covered in
its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment
decision.
March 13, 2009 Analyst Comment
2 Goldman Sachs Global Investment Research