European pharma delivered strong second-quarter results, but lower clinical success rates mean sector rerating still depends on company-specific innovation capabilities

Overview

Following the 2Q26 reporting season, the report reviews the European large-cap pharma and biopharma sector through six lenses: earnings delivery, estimate revisions, clinical innovation, patent expirations, M&A capacity, and valuation. Its central conclusion is that near-term earnings momentum is solid, but weakening clinical results and the long-term patent cliff remain. The basis for a sector-wide rerating is therefore limited, and returns are more likely to come from stock-specific valuation divergence driven by differences in innovation, growth, and catalyst execution.

Core views

First, strong earnings delivery continued in 2Q26. Among covered companies, 64% beat consensus revenue expectations and 91% beat earnings expectations; the report's first page uses 1Q26 figures of 40% and 70% as the comparison, while another section of the main text labels approximately 40% and 70% as 4Q25. Since 1Q25, approximately 45% of companies have simultaneously beaten consensus revenue and earnings expectations. GSK has been the most consistent performer, meeting or exceeding both consensus estimates in every reporting period since 1Q24. The foreign-exchange environment also improved marginally: Roche, GSK, Sanofi, and Novo Nordisk improved their average guidance for the FX drag on 2026 revenue from -3% in 1Q26 to -2%, while the earnings drag remained -4%. Guidance from Novartis, Galderma, AstraZeneca, and Sandoz indicates that FX may provide a +1% to +3% benefit to revenue, with the impact on core earnings ranging from neutral to slightly positive. Forward revisions were generally modest but positive. Following 2Q26 results, industry FY26 consensus revenue estimates were raised by an average of 1% and EPS estimates by an average of 3%. Argenx's revenue and core EPS estimates were raised by 4% and 7%, respectively, partly driven by positive ALKIVIA data; UCB's EPS estimate was raised by 8%, the largest increase among covered companies. Goldman Sachs' 2026–2028 sales and core EBIT forecasts for its European large-cap pharma and biopharma coverage are, in aggregate, 1% above the latest consensus estimates. It believes Argenx has the greatest revenue upside risk due to Vyvgart growth execution, while Sanofi has the greatest operating-profit upside risk. However, weakening innovation momentum offset some of the earnings positives. Goldman Sachs tracks key Phase 3 trials, regulatory approvals, assets with peak-sales opportunities exceeding $500 million, and programs with first-in-class, best-in-class, or first-in-disease attributes. On this basis, the industry's year-to-date 2026 Phase 3 clinical success rate is approximately 75%, down from 82% at the post-first-quarter earnings-season assessment. AstraZeneca's CARDIO-TTRansform, GSK's CALM-2, and Novo Nordisk's ZEUS were among the more notable failures. Argenx, Bayer, Novartis, Roche, and UCB executed clinical catalysts above the industry average; both of Argenx's Phase 3 readouts were positive, 80% of Roche's five readouts were positive, and UCB's single readout was positive. By comparison, 50% of GSK's four readouts were positive, 40% of Novo Nordisk's five were positive, and 33% of Sanofi's three were positive while another 33% produced mixed results. Goldman Sachs continues to view AstraZeneca as the industry's innovation leader, even though approximately 63% of its 19 Phase 3 readouts were positive and approximately 6% were assessed as mixed, leaving its success rate below the industry average. The rationale is that it has the industry's largest number of Phase 3 readouts and the highest absolute number of successful programs, while maintaining leadership in major commercial opportunities and first-in-class, best-in-class, or first-in-disease assets. Its 19 readouts also significantly exceed the five each at Roche and Novo Nordisk. Near-term debate centers on SERENA-4 and AVANZAR before year-end, but the report believes AstraZeneca still has a rich 2027 catalyst pathway comprising laroprovstat, saruparib, balcinrenone, CAMBRIA-1, and two TROPION-Lung studies. Over the long term, patent expirations will determine whether innovation can translate into sustainable growth. The report's risk-adjusted estimates indicate that long-term revenue for the European biopharma industry may decline during 2026–2035. Patent expirations are expected to impose an average annual drag of approximately 2% on industry growth during 2026–2030, with Novartis the most affected in this period, while GSK faces patent-expiration pressure on its HIV products toward the end of the decade. During 2031–2035, the impact on the industry intensifies further, with Goldman Sachs expecting Novartis and Novo Nordisk to be hit hardest. Innovation is therefore not merely a short-term catalyst but also critical to filling the revenue gaps left by existing products, and relative valuation differences between innovation leaders and laggards may persist. M&A and business development are other tools for replenishing pipelines and managing patent-expiration risk. Using a normalized leverage formula of 3x EBITDA, Goldman Sachs estimates that global large-cap pharma companies have approximately $600 billion of balance-sheet capacity to support transactions in 2026. Among European pharmaceutical companies, Novartis has been the most active year to date, announcing seven transactions with an aggregate value of approximately $14.5 billion. By upfront payment, the largest transaction was GSK's $10.6 billion acquisition of Nuvalent. Transactions in 2026 have primarily focused on oncology and immunology, accounting for 31% and 28%, respectively, followed by neurological diseases and obesity. Novo Nordisk's collaboration with AWS continues the trend of integrating artificial intelligence into pharmaceutical partnerships. However, the report stresses that external innovation is not a risk-free quick fix: transaction integration, clinical failures, and excessive acquisition costs can all weaken its ability to replenish pipelines. On valuation, European large-cap pharma currently trades at 12.8x 12-month forward earnings, a 13% discount to the European SXXP market. This discount has widened from 10% in May 2026 after the first-quarter reporting season but remains smaller than the peak discount of 24% in August 2025. Over a 25-year historical period, the industry has instead traded at an average premium of approximately 2%. Despite being inexpensive relative to history, Goldman Sachs remains cautious on an overall sector rerating because patent cliffs and modest near-term growth continue to create fundamental challenges. The report therefore prioritizes stock selection over a sector-direction call, favoring companies with stronger growth and innovation whose valuations are supported by fundamentals. At the individual-stock level, AstraZeneca is rated Buy. It trades at 15.3x Goldman Sachs' 2027 forecast and is expected to deliver a 7% core EPS CAGR during 2027–2032, above the 5% for the European large-cap pharma industry. The report sees abundant catalysts over the next 12–18 months and believes the risk-reward is skewed to the upside following recent share-price weakness. Bayer is rated Buy, with the core thesis that its pharmaceutical business is undervalued and revenue is supported by Nubeqa and Kerendia, while greater clarity on resolving glyphosate litigation could unlock value in 2026. Argenx is rated Buy and included on the Europe Conviction List, as positive Phase 3 ALKIVIA results reinforce its high-growth profile and pipeline optionality, while the EMPASSION trial in 4Q26 may help validate its R&D capabilities beyond Vyvgart. Galderma is rated Buy. Goldman Sachs believes the ramp-up of Nemluvio, growth in neuromodulators and Sculptra, and margin expansion form an industry-leading growth combination. Although the postponement of its Capital Markets Day to 1Q27 reduces the number of catalysts during the year, its consistent earnings delivery continues to support medium-term performance. Sandoz is rated Buy. The report expects the biosimilars market to sustain double-digit growth and estimates that the value of biologics patent expirations in the United States and EU during 2026–2036 exceeds $275 billion. Sandoz already has 13 marketed assets and as many as 46 pipeline assets and is typically among the first wave of launches. UCB is rated Buy, as Bimzelx's best-in-class efficacy and head-to-head advantages across multiple indications support growth; Goldman Sachs believes market concerns about competition in hidradenitis suppurativa are excessive. Neutral-rated companies each have positive and negative factors. GSK has the most consistent earnings delivery, and strategic changes, transactions, and new-product launches have driven its rerating since 2025. However, pipeline optionality is limited, initial launch performance for Exdensur and Blenrep has been modest, and there remains a risk to achieving guidance for revenue above £40 billion in 2031. Novo Nordisk's ZEUS and REIMAGINE-4 failures have heightened concerns about the competitiveness of its obesity pipeline and the expiration of semaglutide patents, but oral Wegovy reached 300,000 patients within three weeks of its UK launch, significantly faster than the approximately 80,000 to 90,000 patients in the United States over the same period, potentially making it an underestimated source of growth. Roche has few near-term catalysts, but Goldman Sachs is more optimistic than consensus on fenebrutinib, estimating peak sales of CHF4.5 billion versus Visible Alpha consensus of CHF1.0 billion. The launch of giredestrant in late 2026 or early 2027 is also an important pillar of the bull case. Sanofi's Dupixent continues to support near-term earnings, but consecutive R&D failures and program discontinuations increase long-term replacement risk, while M&A, expansion of the Regeneron partnership, and improvements in R&D efficiency will all take time to bear fruit. Novartis remains rated Sell. Goldman Sachs believes its strong execution over the past two to three years is now encountering a structural growth reset caused by rising generic pressure, while 2H26 brings a dense period of binary catalysts that will determine its medium- to long-term targets. The current share price trades at a premium to the industry and already reflects some of the value from the pipeline potentially offsetting major generic risks in the 2030s. At the same time, pelacarsen's dosing characteristics may limit its commercial potential, del-desiran is considered high risk, and remibrutinib must contend with the high efficacy bar set by Roche's fenebrutinib.

Analysis framework

The report first measures 2Q26 revenue and earnings delivery by comparing results with quarterly consensus expectations, then examines post-results revisions to FY26 estimates and differences between Goldman Sachs' 2026–2028 forecasts and Visible Alpha consensus. It subsequently tracks innovation efficiency through key Phase 3 readouts, regulatory approvals, commercial opportunities with expected peak sales exceeding $500 million, and first-in-class or best-in-class attributes, combining these results with estimated patent-expiration losses during 2026–2035. Finally, it evaluates sector valuation and stock-specific risk-reward using relative market and historical P/E multiples, differences in company growth, M&A capacity, and future catalysts.

Methodology notes

• Event-Driven Trading and Behavioral FinanceExpectation Gaps/Expectation Management

  Tracking Earnings Beats and Consensus Estimate Revisions

  The report compares actual revenue, operating profit, and EPS with consensus expectations and monitors post-results forecast upgrades or downgrades to determine whether earnings momentum can continue.

• Industry/Sector Analysis Framework

  Tracking Clinical Catalysts and R&D Productivity

  The report records successes and failures in key Phase 3 trials and regulatory approvals and compares companies' innovation momentum by considering whether commercial opportunities exceed $500 million and whether assets have first-in-class, best-in-class, or first-in-disease attributes.

• Industry/Sector Analysis Framework

  Patent-Expiration Risk-Adjusted Revenue Analysis

  The report estimates the share of sales lost due to patent expirations during 2026–2035 and uses this to assess whether new products and transactions can fill the growth gaps left by existing products.

• Valuation MethodPE/PEG valuation

  Relative P/E Valuation

  The report compares the industry's 12-month forward P/E with the European market and its 25-year historical average, while also assessing individual-stock valuations alongside growth rates and industry multiples to identify valuation divergence.

• Valuation MethodDCF Valuation

  Discounted Cash Flow Valuation

  AstraZeneca's 12-month target price uses a blended methodology weighted 50% to DCF and 50% to P/E. The DCF valuation is 16,094p per share, using an 8.0% WACC and a 2.5% terminal growth rate. Argenx's target-price assumptions include a 9.5% WACC and a 1% terminal growth rate.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Normalized M&A Capacity Estimate

  Using 3x EBITDA as the normalized leverage ceiling, the report estimates that global large-cap pharma companies have approximately $600 billion of balance-sheet M&A capacity, measuring the industry's scope to supplement pipelines through transactions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Argenx

  Buy and included on the Europe Conviction List; high growth, Vyvgart execution, and pipeline optionality provide revenue upside.

  Strengths

  Both Phase 3 readouts during the year were positive, with a 100% regulatory approval success rate; positive ALKIVIA data and the 4Q26 EMPASSION trial could validate a second immunology franchise.

  Weaknesses

  The valuation depends on sustained high revenue growth and successful R&D execution.

  Comparison

  Goldman Sachs believes it has the greatest upside risk to 2026–2028 revenue versus consensus among covered companies.

  Risks

  Competing FcRn antibodies demonstrate superior clinical characteristics; negative data emerge for efgartigimod or other pipeline assets; development is delayed or product and market penetration is slower than expected.

• AstraZeneca

  Buy; industry-leading innovation scale, stronger growth, and abundant catalysts make its valuation more attractive.

  Strengths

  Its 19 Phase 3 readouts during the year rank first in the industry; core EPS is expected to grow at a 7% CAGR during 2027–2032, above the industry's 5%.

  Weaknesses

  Its Phase 3 positive readout rate of approximately 63% during the year is below the industry average of approximately 75%.

  Comparison

  It trades at 15.3x Goldman Sachs' 2027 forecast, versus the industry consensus P/E of 13.7x; target-price upside is 34.6%.

  Risks

  SERENA-4 and AVANZAR are high-profile Phase 3 readouts before year-end whose outcomes remain subject to debate.

• Bayer

  Buy; performance in the pharmaceutical business and a pathway to resolving glyphosate litigation could unlock value.

  Strengths

  Nubeqa and Kerendia support revenue growth, and its single Phase 3 readout during the year was positive.

  Weaknesses

  Litigation uncertainty continues to weigh on valuation.

  Comparison

  The report believes the value of its pharmaceutical business is underappreciated and that its risk-reward is asymmetric.

  Risks

  Uncertainty remains around the fairness hearing for the glyphosate settlement and the timeline for final resolution.

• Galderma

  Buy; the Nemluvio ramp-up, growth in medical aesthetics, and margin expansion support a scarcity premium.

  Strengths

  Its growth and margin-expansion potential are rated industry-leading, with a consistent record of earnings delivery.

  Weaknesses

  The Capital Markets Day has been postponed to 1Q27, leaving fewer catalysts during the remainder of 2026.

  Comparison

  The table shows 2026–2029 sales, EBITDA, and EPS CAGRs of 14.5%, 25.0%, and 29.6%, respectively.

  Risks

  Execution risks include the ramp-up of Nemluvio prescriptions, pricing, and volumes, the timing of the US resubmission of Relfydess, and CPUO data.

• GSK

  Neutral; consistent results and strategic improvement have driven a rerating, but further upside requires delivery on the new strategy and pipeline.

  Strengths

  It has met or exceeded consensus revenue and earnings expectations in every reporting period since 1Q24.

  Weaknesses

  Pipeline optionality and catalysts are limited, while initial launch performance for Exdensur and Blenrep has been modest.

  Comparison

  The 1,900p target price offers only 0.5% upside relative to the report price of 1,891p.

  Risks

  Failure of external innovation, insufficient transaction execution, and failure to achieve guidance for revenue above £40 billion in 2031.

• Novartis (NOVN.S)

  Sell; generic pressure is causing a structural growth reset, while the current premium already reflects substantial pipeline replacement value.

  Strengths

  Strong execution over the past two to three years; its single Phase 3 readout during the year was positive, with a 100% regulatory approval success rate.

  Weaknesses

  It faces substantial patent-expiration risk in the 2030s and enters a dense period of binary catalysts in 2H26.

  Comparison

  At CHF126.8, the CHF113.0 target price implies -10.9%; the stock trades at a premium to the industry.

  Risks

  Pelacarsen's commercial potential is constrained by its dosing characteristics, del-desiran is high risk, and remibrutinib faces a high efficacy bar; M&A to replenish the pipeline also carries risks.

• Novo Nordisk

  Neutral; recent R&D failures have weakened long-term confidence, but the rapid UK launch of oral Wegovy is a commercial bright spot.

  Strengths

  Oral Wegovy reached 300,000 patients within three weeks of its UK launch, faster than approximately 80,000 to 90,000 patients in the United States over the same period.

  Weaknesses

  Only 40% of its five Phase 3 readouts were positive, while the ZEUS and REIMAGINE-4 failures heightened concerns about its obesity pipeline.

  Comparison

  The DKK285.0 target price implies -4.8% relative to DKK299.3.

  Risks

  Semaglutide patent expirations, concentration in the obesity business, limited experience integrating larger acquisitions, and poor data from externally acquired programs.

• Roche

  Neutral; near-term catalysts are limited, but fenebrutinib and giredestrant provide potential upside.

  Strengths

  Of its five Phase 3 readouts, 80% were positive; Goldman Sachs estimates peak fenebrutinib sales of CHF4.5 billion.

  Weaknesses

  The clinical catalyst pathway in 2H26 is relatively light, and Pharma Day is not expected to provide formal medium-term targets.

  Comparison

  The CHF4.5 billion peak-sales forecast for fenebrutinib is significantly above Visible Alpha consensus of CHF1.0 billion.

  Risks

  The imbalance in deaths in the fenebrutinib trial could affect FDA acceptance of the filing, while approval and launch of giredestrant also remain uncertain.

• Sandoz

  Buy; the "golden decade" of biosimilar patent expirations and a leading product portfolio support long-term growth.

  Strengths

  It has 13 marketed assets and as many as 46 pipeline assets, is typically among the first wave of launches, and has a relatively clean balance sheet.

  Weaknesses

  The Generics division encountered multiple headwinds in 1H26, while regulatory simplification may also intensify competition.

  Comparison

  The report expects the biosimilars market to sustain double-digit growth, with the value of related US and EU patent expirations during 2026–2036 exceeding $275 billion.

  Risks

  Momentum from new launches, the approval and launch timing of generic semaglutide in Canada and Brazil, and intensifying competition.

• Sanofi

  Neutral; Dupixent supports near-term earnings, but R&D failures have raised questions about the pipeline's long-term replacement capability.

  Strengths

  Commercial execution remains strong, and Dupixent continues to support near-term earnings momentum; Goldman Sachs expects it to have the greatest operating-profit upside risk versus consensus.

  Weaknesses

  Consecutive R&D failures and product discontinuations have renewed investor concerns about pipeline productivity.

  Comparison

  The €79.0 target price implies 0.9% upside relative to €78.3.

  Risks

  The long-term competitive threat from Dupixent biosimilars, and slow realization of benefits from M&A, expansion of the Regeneron partnership, and improvements in R&D efficiency.

• UCB (UCB.BR)

  Buy; Bimzelx's best-in-class efficacy and indication expansion support continued growth.

  Strengths

  Bimzelx has demonstrated advantages in head-to-head trials across multiple indications; its single Phase 3 readout during the year was positive.

  Weaknesses

  New competing drugs and treatment classes will continue to emerge in hidradenitis suppurativa.

  Comparison

  Goldman Sachs believes market concerns about competition from remibrutinib and lutikizumab are excessive; target-price upside is 34.1%.

  Risks

  If subsequent Phase 3 data for competing assets demonstrate stronger efficacy, Bimzelx's competitive position could weaken.

Key data

• Share Beating 2Q26 Revenue Expectations64%The report's first page compares this with 40% in 1Q26; another section of the main text labels approximately 40% as 4Q25.
• Share Beating 2Q26 Earnings Expectations91%The report's first page compares this with 70% in 1Q26; another section of the main text labels approximately 70% as 4Q25.
• FY26 Consensus Estimate RevisionsRevenue +1%, EPS +3%Average industry revisions following the release of 2Q26 results.
• Goldman Sachs Forecasts Versus ConsensusSales and core EBIT both 1% higherAggregate figures for covered European large-cap pharma and biopharma companies during 2026–2028.
• Year-to-Date Phase 3 Success RateApproximately 75%Below the 82% recorded at the post-first-quarter earnings-season assessment.
• AstraZeneca Phase 3 Readouts19, approximately 63% positive and approximately 6% mixedThe industry's highest number of readouts; Roche and Novo Nordisk each have five.
• Industry 12-Month Forward P/E12.8xA 13% discount to the European SXXP market.
• Historical Relative Industry ValuationAverage premium of approximately 2% over the past 25 yearsThe current discount is 13%; the discount was 10% in May 2026 and peaked at 24% in August 2025.
• Patent-Expiration Growth DragApproximately 2% annuallyEstimate for the European biopharma industry during FY26–FY30E.
• Large-Cap Pharma M&A CapacityApproximately $600 billionBased on a normalized leverage formula of 3x EBITDA.
• Novartis Transactions During the Year7 transactions, totaling approximately $14.5 billionThe highest transaction count and aggregate value among European pharmaceutical companies.
• GSK Acquisition of Nuvalent$10.6 billion upfront paymentThe largest transaction in the European sector listed in the report, measured by upfront payment.
• Share of 2026 Transactions by Therapeutic AreaOncology 31%, immunology 28%Followed by neurological diseases and obesity.
• Value of Patent Expirations Addressable by SandozMore than $275 billionValue of biologics patent expirations in the United States and EU during 2026–2036.
• UK Launch Progress of Oral Wegovy300,000 patients in three weeksApproximately 80,000 to 90,000 patients in the United States at the same point in time.

Impact & implications

The report believes strong second-quarter earnings and modest estimate upgrades can support near-term fundamentals but are insufficient to offset the valuation constraints created by declining clinical success rates, long-term patent expirations, and subdued growth. The industry may continue trading at a discount, while the quantity and quality of innovation programs, revenue growth, M&A execution, and capabilities to address patent cliffs will drive further valuation divergence among companies.

Risks

• The industry's Phase 3 clinical success rate has fallen to approximately 75%, and several high-profile binary clinical outcomes before year-end could trigger significant share-price reactions.
• Patent expirations during 2026–2035 may cause long-term revenue declines, with an average annual industry growth drag of approximately 2% during FY26–FY30E and a further increase in impact during the 2030s.
• M&A and business development cannot eliminate clinical and execution risks, and failures in external innovation or inadequate integration may prevent effective pipeline replenishment.
• Near-term industry earnings growth is modest, and current undervaluation relative to the market and history may not be sufficient to drive an overall sector rerating.
• AstraZeneca faces readout risks from SERENA-4 and AVANZAR; Novartis faces high-risk catalysts including pelacarsen, del-desiran, and remibrutinib.
• The timeline for resolving Bayer's glyphosate litigation remains uncertain; GSK faces a risk to achieving guidance for revenue above £40 billion in 2031.
• Novo Nordisk faces questions regarding the competitiveness of its obesity pipeline, semaglutide patent expirations, and acquisition integration capabilities.
• Sanofi must address declining R&D productivity and the long-term competitive threat from Dupixent biosimilars.

What to watch

• Monitor Argenx's EMPASSION trial, expected to read out in 4Q26, to assess whether empasiprubart can help establish an immunology franchise beyond Vyvgart.
• Monitor AstraZeneca's SERENA-4 and AVANZAR before the end of 2026, as well as laroprovstat, saruparib, balcinrenone, CAMBRIA-1, and the TROPION-Lung programs in 2027.
• Monitor the settlement and related fairness-hearing process for Bayer's glyphosate litigation, as well as revenue growth from Nubeqa and Kerendia.
• Monitor Nemluvio prescription, pricing, and volume trends at Galderma, the timing of the US resubmission of Relfydess, and CPUO data in late 2026 or 1Q27.
• Monitor Novo Nordisk's Capital Markets Day on September 21, 2026, the ramp-up of oral Wegovy outside the UK, and SYNCHRONY real-world data for efruxifermin.
• Monitor Roche's Pharma Day on September 28, 2026, FDA acceptance of the fenebrutinib filing, and the launch of giredestrant in late 2026 or early 2027.
• Monitor recent biosimilar sales momentum at Sandoz, growth in the Generics division, approval and launch timing for generic semaglutide in Canada and Brazil, and arrangements for its Capital Markets Day.
• Monitor whether GSK's new strategy, new-product launches, and transaction execution can provide substantive evidence supporting its target of revenue above £40 billion in 2031.
• Monitor Novartis' Phase 3 results for pelacarsen, del-desiran, and remibrutinib in 2H26, as well as further M&A or business-development activity.
• Monitor post-results consensus revisions to industry revenue and EPS, success rates for key Phase 3 trials, and valuation differences between innovation leaders and laggards.