Respected fund manager Neil Woodford has come out to praise the potential of AstraZeneca (LSE: AZN) (NYSE: AZN.US) this morning, after the company updated investors on its progress over the past few months.
Neil Woodford commented that Astra’s prospects as an independent company were, “even stronger” as a result of the firm’s strong pipeline of new products. And it’s fair to say that Astra’s pipeline has really come a long way since US peer Pfizer made a bid for the UK drugs maker earlier this year.
Solid pipeline
For example, Astra has developed an industry-leading immuno-oncology portfolio with 13 clinical trials already underway and a further 16 planned. What’s more, in total the group has 14 potential new drugs already in the process of Phase III testing or registration before sale. There’s potential for another 14 to 16 drug submissions in addition to the current Phase III pipeline and eight to ten approvals are set for 2016.
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That’s a solid pipeline of treatments under development, with plenty of potential to kick-start growth.
Management believes that as a result of these pipeline developments, Astra is on track to return to growth by 2017. Moreover, Astra believes that its target to delivering revenues of over $45bn by 2023 is achievable, based on the company’s current position. However, Woodford is not so sure and still believes that reaching this lofty target will be “tough”.
Nevertheless, Woodford does feel that Astra’s attractive future could well underpin a fresh bid approach from Pfizer, or another suitor. The star fund manager puts the chance of another bid at 50/50.
Shareholder returns
When Pfizer announced its offer for Astra earlier this year, Woodford did not lend his support to the deal as he believed, that over time, Astra could achieve a far better return for its shareholders than the offer from Pfizer could have delivered. The fund manager reiterated this view today and it’s hard to disagree with him.
While Astra’s shareholders would have received a one-off cash payment if the company had accepted Pfizer’s offer, over the long-term, Pfizer would have cut costs at the company and neglected research and development spending, in order to justify the merger price.
As an independent entity looking for growth, Astra is spending heavily on R&D, which is showing through in the company’s pipeline of treatments underdevelopment and should fuel earnings growth over the long-term.
Moreover, Astra is putting shareholders first, with its commitment to safeguard the dividend and hike the payout in line with earnings. Indeed, under the Azip executive compensations plan, which I have covered here, if Astra’s dividend payout is cut, management stands to lose millions in share awards.
