“Since January we’ve seen the company’s share price rise from around £45 to near £55 – much of this on the expectation of a positive result to Mystic. As the adage goes – ‘it’s better to travel than to arrive’.
“Rumours abound on AstraZeneca’s M&A prospects – price wise it looks far more appealing as a target today than it did yesterday, but its prospects have diminished.”
While AstraZeneca has the ability to turn things around with its forthcoming clinical trials, EdenTree Investment Management’s Ketan Patel agreed that “this early setback doesn’t augur well for a therapy that was forecast to have peak sales of $4bn in 2023”.
“This pipeline failure will only add further pressure on the CEO, Pascal Soriot, who promised much when he rebuffed a premium bid by Pfizer in 2014,” he continued.
“The 5% yield may provide a floor in the near term, but investors will need strong stomachs to continue to hold the name.”
It should be noted that Patel, as well as Bailey and Clark, are big proponents of AstraZeneca’s competitor GlaxoSmithKline, which sits in the top 10 holdings of the EdenTree Amity fund and is the largest holding in the Liontrust Macro Equity Income fund.
Although Kames Capital UK Equity Income manager Iain Wells admitted “today’s not the day for the stock”, he thinks the prospect of an M&A takeover is less likely today than it was back when Pfizer tried to stake its claim three years ago.
“For Pfizer, it was all about the tax inversion,” said Wells, who has AstraZeneca in his top three holdings, “which is a lot harder to achieve now that the stable doors have been shut.
“From that angle, one would think the reasons for doing it are less likely than in the past.”
As far as Wells is concerned, the fact that AstraZeneca’s dividend remains unscathed and it has a promising pipeline of future drugs are reasons to continue to hold the stock.
“As a business, they have past the low point and the hope is that it improves from here. As ever for pharma companies, these are very big and complicated products and models, so it is always going to be a somewhat bumpy ride.”
But as Wells notes, “with a few more days like today, they are bound to be vulnerable”.
