Pharma: Beta, Multiples & WACC by Sector

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What the numbers say.

The pharma sector has shifted a bit this month. It is valued a touch higher than a month ago: the median P/B edged up to 4.5x while companies moved both ways, the beta eased to 0.42, and the cost of capital stands at 6.1 %. The sector is more unsettled than in September: the choice of peers and settings moves the value more than it did.

P/B is now the multiple to use

It is the tightest of the multiples the fundamentals explain, a dispersion of 29 % across the 20 companies. P/E spreads by 45 % because it carries the expected growth differences with it.

The beta to use: 3 years, daily, 0.42

Among the stable settings it has the tightest spread across the 20 companies; R² 6 %, all 20 betas significant, liquid group (median bid-ask spread 0.15 %). The smartZebra standard setting, 5 years monthly, has a dispersion of 32 %. The settings alone move the median beta from 0.27 to 0.62.

The settings matter

Ten of the twenty companies move the P/B median by −17 % to +17 %, the settings by up to 48 %. Pharma sits in the settings corner of the map.

ROE is confirmed

The usual yardsticks for pharma: ROE (with P/B) and EBIT margin. ROE: confirmed (rank correlation +0.73 with P/B (LTM)). EBIT margin: rejected (rank correlation +0.08 with EV/EBIT (NTM)).

P/B (LTM): median 4.4x → 4.5x

12 more expensive · 8 cheaper

argenx fell most (−13 %), Genmab rose most (+20 %).

{"m":[["Orion","7.4","7.8","+5%"],["Roche","7.2","7.6","+4%"],["ALK-abello","6.0","6.7","+10%"],["Novartis","5.9","6.3","+7%"],["argenx","7.2","6.3","−13%"],["Galderma Group","5.2","5.8","+10%"],["Recordati Industria Chimica e Farmaceutica","5.0","5.0","±0%"],["Novo Nordisk","5.4","5.0","−8%"],["AstraZeneca","4.7","4.8","+2%"],["Lonza Group","4.4","4.8","+8%"],["GSK","4.4","4.2","−3%"],["Genmab","3.3","4.0","+20%"],["Bachem","3.8","4.0","+3%"],["Swedish Orphan Biovitrum","3.6","3.5","−2%"],["UCB","3.4","3.5","+5%"],["Ipsen","2.6","2.4","−6%"],["Merck","1.9","2.1","+6%"],["H. Lundbeck","1.6","1.7","+9%"],["Bayer","1.7","1.6","−9%"],["Sanofi","1.2","1.2","−2%"]],"b":[["Bachem","0.81","0.81",62],["Swedish Orphan Biovitrum","0.70","0.70",66],["Merck","0.63","0.62",82],["Genmab","0.62","0.60",76],["Novo Nordisk","0.57","0.54",69],["Lonza Group","0.55","0.52",80],["Galderma Group","0.50","0.47",60],["UCB","0.54","0.46",45],["Ipsen","0.47","0.44",48],["ALK-abello","0.47","0.43",57],["argenx","0.42","0.41",47],["Recordati Industria Chimica e Farmaceutica","0.42","0.40",53],["Bayer","0.39","0.40",80],["Orion","0.39","0.38",57],["AstraZeneca","0.41","0.37",76],["Sanofi","0.41","0.36",69],["Roche","0.30","0.30",76],["GSK","0.29","0.28",71],["H. Lundbeck","0.28","0.26",45],["Novartis","0.26","0.24",66]],"w":["UCB","H. Lundbeck","argenx","Ipsen","Recordati Industria Chimica e Farmaceutica"]}

Beta (3 years, daily): median 0.44 → 0.42

20 of 20 significant

Each line runs from last month’s beta (light dot) to this month’s (blue dot), on the same beta setting.

Do the usual yardsticks hold this month?

The usual yardsticks for pharma, tested on the 20 companies this month.

ROE

Confirmed

Rank correlation +0.73 with P/B (LTM) · clear link from +0.60

EBIT margin

Rejected

Rank correlation +0.08 with EV/EBIT (NTM) · clear link from +0.60

Position on the sector map

This sector in gold, the other 19 sectors in blue. Dashed lines at 40 pp are illustrative.

Construction

Chemicals

Utilities

158

Telecom

Media

Travel & Leisure

Retail

Luxury

Consumer Goods

Logistics

Business Serv.

Aero & Defence

Electrical Eq.

Medtech

Pharma

IT Services

Semiconductors

Software

Automotive

Machinery

Pharma

How much the choices move the result

Beta and fit

R² (median)

6 %

Significant betas

20 of 20

Median bid-ask spread

0.15 %

Beta range across settings

0.27–0.62

What moves the value?

Change vs. prior month

+2 % vs. September

Peer impact on the median

−17 % to +17 %

Spread from peer choice (pp)

Spread from beta settings (pp)

Position on the sector map

Settings decide

Cost of capital

Cost of equity (CAPM)

“kE = rf + β · MRP”

rf = base rate, MRP = market risk premium, β = sector median beta.

WACC

“WACC = E/(D+E) · kE + D/(D+E) · kD · (1 − t)”

kD = base rate + credit spread; t = peer-average tax rate.

Tax rate

“t = average tax rate of the 20 peers”

Shown above as Tax rate (%).

Selection rules

Best-fit multiple

“lowest dispersion across the 20 companies”

The reference multiple is used only as a fallback.

Beta setting

“tightest spread among stable settings”

Replaces 5y monthly only if it passes the two-month rule.

Status

“|Δ value| ≤ 1 % and |Δ β| ≤ 0.03 → stable”

Up to ±5 % / ±0.06 → shifted a bit; beyond → shifted noticeably.

Scope

The 20 largest European listed companies by market value with core business in pharma and profitable biotech; primary listing on a European exchange; banks, insurers, financial services and real estate are excluded.