Investment Column: AstraZeneca soars on Crestor ruling

Hunting; Phorm
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The Independent Online

Our view: Hold

Share price: 3169p (+222p)

There was a heart-in-mouth moment for investors in AstraZeneca on Tuesday when a US district court judge in Delaware delivered his verdict on the strengthening of patents protecting the pharmaceuticals company's intellectual property rights over its blockbuster cholesterol drug, Crestor.

Yesterday's 7.53 per cent leap in the share price will tell potential backers that the judge backed the Anglo-Swedish group's claims against generic drug-makers. AstraZeneca has spent a lot of time in court over the past couple of years, squeezing as much out of its patents as it can.

In a recent interview with The Independent, its chief executive, David Brennan, described fighting challenges to patents as a "defensive strategy". But some see it as swimming against the tide. Many of big pharma's big earners are set to lose their protection in the coming years, and a number of analysts say AstraZeneca is particularly vulnerable.

Mr Brennan concedes that the loss of exclusivity on the breast cancer drug Arimidex and asthma medicine Pulmicort Respules will put pressure on revenues, but says he is confident the company will grow market share in other medicines. There are, of course, projects in the pipeline (investors should be excited about an anti-clotting treatment, Brilinta). And on the maths alone, the 2010 prospective yield of 5.5 per cent, and an undemanding multiple of 7.3 times, should also arouse the interest of some.

But while AstraZeneca is undoubtedly as blue chip as it gets, there is little to get that excited about, unless one believes a Standard & Poor's report naming Astra as the most likely European large-cap company to be bought by a US rival. With the dollar appreciating against the pound, a number of UK companies are becoming targets, and if investors believe there is even a sniff that AstraZeneca will be bought, they should top up on the stock. But it is still a long shot and we would err on the side of caution. Hold.

Hunting

Our view: Buy

Share price: 448.3p (+6.1p)

With BP still struggling to contain the Deepwater Horizon spill in the Gulf of Mexico, it is a difficult time to be in the oil industry. Hunting, the oil and gas services group, acknowledged as much in its first-half update yesterday, forecasting that the events in the Gulf would "inevitably have an effect" on trading in the second half.

But notwithstanding the uncertainties ahead, 2010 is proving "very positive" for Hunting so far. Every global market except Canada saw a major boost towards the end of 2009.

The company's well construction division saw a lift from rising onshore activity,particularly shale gas. The well completion arm is a trickier proposition – 22 per cent of its current backlog is related to deep-water drilling in the Gulf of Mexico. But well intervention is outperforming, with sizeable backlogs in Angola, Brazil, Australia and the Middle East.

The US government's unpredictable response to the BP spill is an undoubted risk, but there is also the absolute certainty that global demand for oil and gas is on the rise.

Hunting's broad global spread should insulate it against turbulence related to the crisis in the Gulf. And despite a multiple of 26 times 2010 forecasts, the shares are off 33 per cent since their March peak. The market is arguably over-emphasising Hunting's risk from the Gulf and overlooking improvements elsewhere, so buy.

Phorm

Our view: Hold

Share price: 185p (+2.5p)

Phorm, which tracks internet usage habits to provide personalised advertising, has had a rough ride of late. The company's shares are down about 45 per cent since the start of the year.

Phorm admits 2009 was tough, with the postponement of its UK launch and delays in Korea, but says it has learned lessons. These include the realisation that its approach of involving internet service providers means it will be held to a higher standard of privacy. This is clearly good news.

Recent trials such as the one undertaken with BT mean Phorm now says it is possible to ensure the only data its system comes into contact with is that from consumers who explicitly grant opt-in permission. But why wasn't this clear earlier?

The shares have fallen very far, very fast and there is little point in selling. But we don't feel we can justify a buy stance until we see more contracts, customers and confidence. Hold.

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