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Nigel Thomas: why I bought AstraZeneca before the bid

by David Campbell on May 12, 2014 at 14:16

Nigel Thomas: why I bought AstraZeneca before the bid

Citywire AA-rated Nigel Thomas bought into Astra-Zeneca ahead of its takeover offer from Pfizer, saying that even without the acquisition bid the company appeared to have been over-discounted.

While the company will see a number of key revenue-earning patents expire within the next few years, Thomas said that the market had failed to see the strength in its continuing drug portfolio.

Writing in his bi-annual Thomas Report update, the manager of the £4.8 billion AXA Framlington UK Select Opportunities identified the company as one of a number of businesses he was invested in which found itself on the right side of disruptive technological change.

In particular the business was one of the top four businesses, behind Bristol-Myers Squibb and Merck in the US and Roche AG in Switzerland, to benefit from advances in cancer immunotherapy.

‘While approaching the subject as a layman, the basic tenet of the research is that cancer can be transformed from a terminal illness to a chronic disease through immunotherapy,’ wrote Thomas.

‘We have purchased shares in AstraZeneca in the last six months; their predicament of significant revenue-earning patent expiries over the next few years has been heavily discounted by the stock market.

‘However, behind the other three companies, Astra’s portfolio of compounds is notable due to their expertise, with existing drugs across a wide spread of clinical outcomes. Given that many immunotherapies will incorporate other drugs in "combination therapies", AstraZeneca will have the option to commercialise a great deal of in-house compounds to late stage trials.'

Recent positive results in research involving similar therapies had estimated that as many as 60% of cancers could in future become chronic rather than fatal conditions. Market-leader Bristol Myers-Squibb has estimated 2013 revenues related to just one immune-therapeutic product, melanoma treatement Yervoy, of around $1 billion (£592 million).

‘AstraZeneca shares have been lowly rated due to their cliff of patent expiries but have recently responded to the takeover approval from Pfizer. More portfolio managers are now looking across to the sunlit hills beyond. Bristol-Myers Squibb was lowly rated for similar reasons, but now trades on 31 times its consensus 2014 earnings.’

Thematically and stylistically, he said there were fundamental similarities between a business such as AstraZeneca and others he holds such as food distributor, retailer and caterer Booker.

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