A few analysts are puzzled about AstraZenecas (LSE: AZN) recent rally, and so am I.The shares are up about 13% since 10 March why is that?
Rumours & Deals
There are widespread rumours in the asset management community that Pfizer is considering another bid for Astra, a senior banker in London told me this week.
That possibility was reinforced on Tuesday, whenTeva Pharmaceuticalmade an unsolicited offer forMylan; at $40bn, the deal could turn out to be the biggest acquisition in the pharmaceuticals industry in 2015 and could strengthen the position of Teva as the biggest generic drugs business on a global scale.
The stars seem aligned for a Pfizers comeback but are they, really?
Performance
AstraZeneca is currently valued at 4,851p a share, which is in line with the level it recorded in early May 2014, when investors were eager to bet on a successful outcome for Pfizers proposed offer. By late May, however,Astra had rejected Pfizers 70bn proposal, noting that the bid had undervalued its growth potential.
AstraZenecas shares tumbled 13% to 42.04 on the news, wiping about 8bn off the companys market value as investors concluded that the chance of a deal was now remote, The Guardian reported at the time.
How serious is the risk that Astra stock will dive again?
Even after its recent rally,Astra is up only 6% this year, which is a poor performance compared to Shire (+22%) and Glaxo (+13%), and is also a couple of percentage points below that of the FTSE 100.
Pfizer/Results/Drugs
I think that Pfizer wont make any comeback as tax-driven deals appear to be off the table,so there are two elements you ought to take into account right now: first-quarter results, which are due on Friday, and Astras pipeline of drugs.
On the face of it, 2014 quarterly figures are relatively easy to beat, so I would not be surprised if good news surrounded Astra in the wake of the announcement. That may contribute to short-term upside, but its hard to believe capital appreciation would be greater than 1% to 1.5% on the day, regardless of how the market performs.
Lets consider its drugs pipeline, then: therehas been much talk ofupside potential for cardiovascular pill Brilinta in recent weeks.Astra has been talking about Brilinta for a very long time and has been investing hugely in its development.So, is that the reason why Astra stock is on a roll?
Heavy investmentshould be a real concern, as virtually nobody in the market believes in Brilinta, and hasnt done for a long time. If anything is going to push the stock up its M&A, or oncology,a second senior analyst in London pointed out, ruling out M&A upside.
Oncology?Well, is that behind the rally, then?
Its oncology pipeline could be a factor, and in particular its checkpoint inhibitorsanti-PD1, anti-CTLA4 and others, but here itgets a bit sciency! the analyst concluded, noting that lots of study data is shortly coming up at the ASCO conference both for Astra and such competitors such as Bristol-Myers Squibb, Merck and Roche.
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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.