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Pharma stocks deal FTSE shot in the arm

by Daniel Grote on Apr 22, 2014 at 11:17

Pharma stocks deal FTSE shot in the arm

Pharmaceutical stocks have dealt the FTSE 100 a boost, helping to drive the UK blue chip index 54 points, or 0.8%, higher to 6,679.

AstraZeneca (AZN.L) and GlaxoSmithKline (GSK.L) were the standout performers, as deal activity and reports sparked strong gains for the pharmaceutical heavyweights, favourites of many fund managers.

AstraZeneca shot 272p, or 7.2%, higher at £40.53, after a report in the Sunday Times that US rival Pfizer had launched a tentative takeover approach for the business, valuing it at more than £60 billion, or roughly £48 per share. According to the paper, the approach was made ‘in recent weeks’, although a subsequent Bloomberg report said it was made ‘months’ ago, and was resisted by AstraZeneca. Talks are not thought to be ongoing although investors hope they may reopen in future.

Deutsche Bank analysts poured cold water on the story despite the jump in AstraZeneca’s shares, saying they had ‘some scepticism about the extent of the alleged discussions’ and questioning the rationale behind any approach. ‘To justify any such deal from a longer-term perspective, it seems likely that Pfizer would need a high level of confidence in AstraZeneca’s new drug pipeline. This would seem a leap of faith,’ they said.

GlaxoSmithKline followed close behind with an 87p, or 5.6% gain to £16.46 after announcing a deal to swap its oncology business with Novartis’ vaccines arm and form a joint venture of their consumer businesses. The deal has been greeted enthusiastically by the market, with Panmure Gordon analyst Savvas Neophytou arguing it showed management would not ‘sit idly by waiting for the pipeline to mature but will take brave decisions to unlock shareholder value’. Neophytou has upgraded the stock from ‘hold’ to buy’ on the news.

Shire (SHP.L) also rode higher off the back of improving sentiment for deals in the pharmaceutical sector. It added 127p, or 4.3%, to £30.52 after analysts at Citi reiterated its view that the biopharma group could be a potential takeover target.

Miners dominated the small number of stocks in the red. Amongst the morning’s biggest losers were:

  • Anglo American (AAL.L), down 19.5p, or 1.3%, at £15.28
  • Randgold Resources (RRS.L), down 51p, or 1.1%, at £46.70
  • Rio Tinto (RIO.L), down 20p, or 0.6%, at £32.69
  • Glencore (GLEN.L), down 1.3p, or 0.4%, at 312.9p
  • Fresnillo (FRES.L), down 5p, or 0.6%, at 862.7p.

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