Credit Suisse04 August 2020 Equity Research I GlobalGlobal Equity StrategyUtilities to overweight, pharma and energy to underweightResearch AnalystsAndrew Garthwaite+44 20 7883 6477Mengyuan Yuan+44 20 7888 0368Robert Griffiths+44 20 7883 8885robert.griffithscredit-suisse. comAsim Ali+44 20 7883 2480Nicolas Wylenzek+44 20 7883 6480Timothy OSullivan+44 20 7888 9803DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Discosure: Credit Suisse 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.(4) Pricing was under pressure even before the recent change in the political climate. In fact, pricing had already fallen prior to the Covid-19 crisis, as proxied by the difference between pharma PPI relative to core PPL Net drug pricing is up by only 2%.(5) The pharma sector might be more disrupted in the long term than appears to be the case.Only 30% of revenues come from unique products, raising the question of whether high prices are sustainable in the ong term.Lower period of uniqueness: Our pharma team highlights that big data has also been used to assist in drug development and has helped *level the playing field in allowing for fast followers to develop drugs, which has left fewer blockbusters able to benefit from long competition-free periods.A lot of the growth is bought in: McKinsey said at Davos in 2019 (FT, 24 January 2019) that 69% of the portfolio of high-growth pharma has come from acquisitions or licensing arrangements since 2015. This is evident when we look at asset turns (which have been falling consistently).Move to value-based contracts diminishing the value of blockbusters: It is quite possible that with the fall ng price of DNA testing, individuals could be tested to see if their DNA is suitable for a drug and charged only if the drug is deemed suitable to help cure or ease their ailment (Goog e!s Deepmind, which has access to 1.6m medica records, has estimated that up to 25% of patients get no benefit from a top-selling drug (FT, 21 February 2019).Biosimilars: The hope is that the tail on biologies is much longer than single-molecule drugs. The risk is that with big and fast data, it is easier to replicate biologies. In 2019, 42% of branded drugs are expected by our Pharma team to be biologies. The risk is that over time, the ability of companies to manufacture biosmilars increases owing to improvements in technology and therefore the discount increases as more biosimilars chalenge a particular biologic drug. AbbVie is thought to have offered up to an 80% discount in the most recent Danish tender to sustain volume share of cass-leading Humira (Reuters, 2 November 2019). The patent expiries for biologies pick up by the end of 2022 and through to 2023.A threat to long-term annuity-style treatments: Our Pharma team highlights that curative treatments such as gene therapy, which are on the cusp of commercialisation, could affect companies enjoying annuity-type revenues currently in categories such as haemophilia.(6) Too much optimism for pharma. We also worry that net analysts buy， recommendations have been very high. Indeed when it has been this high, then on two out of the last three occasions the sector has gone on to underperform (over next year). It is also the largest sector in Europe.Net analyst buy recommendations for European pharmaUnderperform-rated European pharma namesName-一P 正(12m fwd)-P/B -2019e,%HOLTPrice, % change to best2019e Momentum, %Consensus recommendation (1=Buy;5=Sell)Credit Suisse ratingAbsreltoIndustryrel to mkt % above/below averageAbsrel to mkt % above/below averageFCYDY3m EPS3m SalesH Lundbeck20.6131%-56%3.1-25%na1.318.6-30.10.02.8UnderperformOrion B29.8189%6%7.80%na3.418.814.72.24.3UnderperformRecordati Indua.Chimica24.9158%-1%8.145%0.82.27.94.7-1.72.1UnderperformSource: IBES, MSCI, HOLT, Refinitiv, Credit Suisse researchWe upgrade utilities to overweight (we had taken weightings to benchmark from underweight in December): (1) Utilities is no longer disrupted. The highly disrupted areas, such as fossil fuel generation, now account for just c20% of market cap (down from 55% of market cap in 2010), while the renewable-focused names now account for well over 50% of market cap (up from just 10% in 2010). Our team highlights that by end-2023, there will be almost no coal generation in the UK. Gas distributors could become hydrogen distributors and EV boost electricity demand by clO% (up to 25% in some EU coun