“Going forward, their defensive nature will play both for and against CEE pharma stocks. For 1Q10, the sentiment is foreseen to favor cyclicals, with investments in pharma titles to be sidelined. However, as economic conditions remain fragile and the impact of the economic slowdown will still be reflecting in cyclicals’ business results, we might see a return of investors to defensive titles later in the year,” explains Vladimíra Urbánková (photo), pharma sector analyst at Erste Group.

Erste analyst added that that healthcare - and especially generics players - should be among the preferred picks in 2010.

CEE pharma companies are poised to deliver solid business results, although - due to the restrictive drug pricing reimbursement measures - the tempo might be somewhat tempered compared to pre-crisis days.

Also in 2010, CEE pharma stocks, representing a safe haven in times of turbulences and uncertainty, will undoubtedly continue to be driven by changing investor sentiment (apart from their business results).

“However, with their current valuations far below their earlier peaks, the top CEE pharma stocks retain their long-term appeal”, Erste said in the report.

“Reduce” recommendation for ATB, “Buy” for BIO

Although Romanian pharmas’ forex fortunes are set to be slightly more favorable this year, analysts expect their profitability margins to be squeezed by the worsening payment discipline and sales tax recently introduced in Romania.

The Antibiotice target price is revised to 0.624 lei per share and the Reduce recommendation on the stock is confirmed.

Although Erste Group analysts continue to view Biofarm’s position as slightly better, their revised target price of 0.222 lei points to limited upside potential at the moment and they stick to Hold recommendation.

Richter and Egis – picks of choice

“The (at least partial) closing of the valuation gap should propel Egis’ share price appreciation, while for Richter the Richter Gedeon pipeline progress should provide a desirable stock trigger”, Erste said.

The target prices for Richter and Egis arrive at 48,200 forints per share and 21,755 forints per share, respectively, up 5% and down 4% compared to previous targets.

Erste Group analysts hence stick to Accumulate recommendations for both companies.

Even though Krka’s top line tempo was subdued in 2009 and is seen to slow down to single-digit terms in 2010, the company is poised to witness a stable business performance, with profitability parameters fueled by its strong innovation drive.

“While the share price recovery might still take some time, the currently depressed price levels remain very inviting”, Erste outlined. With a revised target price of €92.0 per share, analysts confirm their Buy recommendation.

In case of Bioton, Erste Group analysts opt to remain on the conservative side and stick to their Hold recommendation and set their one-year target price at 0.21 Polish zloty, slightly down from previous forecast.