Market report: Patent woes likely to raise Astra's appetite for deals
Will AstraZeneca be forced to go shopping? Amid talk that the pharmaceutical giant's troubles mean it is increasingly liable to do a deal, the news of a further blow to one of its major drugs only strengthened the idea it will buy in growth from elsewhere.
With the company's pipeline looking worryingly thin and a number of its blockbuster drugs facing the loss of their exclusivity, Liberum Capital's Naresh Chouhan claimed the prospect of it making an acquisition “is more likely than at any time in the last few years”.
To support his theory, Mr Chouhan highlighted the upcoming arrival of Leif Johansson as Astra's new chairman, saying the former Volvo boss – who will take up the role in September – was “highly acquisitive” while at the Swedish group.
The analyst also had a specific recommendation for Mr Johansson. Although he conceded a mega-merger with a fellow giant was unlikely, he picked out US pharma Forest Laboratories as a “good strategic fit but small enough to allow Astra to meet consensus cash return expectations”.
He added that such a a deal would be “received positively” and could result in a re-rating, as he gave Astra a double upgrade by changing his “sell” advice to “buy”.
It didn't stop the group slipping 10p to 2,155p, however, after a High Court ruling went against its schizophrenia medicine Seroquel XL yesterday. A version of its second-best-selling drug, which is set to face generic rivals in Europe and the US later this month, judges ruled that its patent was invalid in the UK – a decision, said Mr Chouhan, which adds “to the probability that [Astra] conducts a deal”.
Overall the FTSE 100 was knocked back 46.3 points to 5,845.65 following a raft of poor economic data from around the world. Signs that China's manufacturing sector is contracting hit the heavyweight diggers particularly badly, with Fresnillo and Vedanta Resources falling 116p to 1,621p and 65p to 1,287p respectively.
Meanwhile, Eurasian Natural Resources declined 16p to 627.5p after Société Générale's Abhi Shukla warned the chances of it becoming a bid target for Glencore (12.25p worse off at 403.5p) have dropped following the commodity trader's £3.9 bn deal to buy Canadian wheat exporter Viterra.
Still, that was nothing compared to Randgold Resources' plummet. The yellow metal digger closed 2.6 per cent lower at 5,765p on fears of a military coup in Mali, despite claiming its operations there were still running smoothly. Cluff Gold, which also operates in the country, was another hit by the news as the AIM-listed group dropped 3.5p to 84.75p.
Back on the Footsie, Kingfisher may have started the day in the red after releasing its preliminary results, but a turnaround from the B&Q-owner saw it finish 7.4p ahead at 307.4p following talk of an encouraging meeting with analysts.
What goes up must come down, as Gem Diamonds found to its cost yesterday. The precious stones producer has been in sparkling form this week, climbing 23 per cent in just three sessions. Yesterday, however, it was pegged back 7p to 303.6p on the FTSE 250 after investors were tempted into profit taking by Citigroup switching its rating from “buy” to “sell”, with the broker warning that “investment demand for ... top-end quality diamonds is dissipating”.
Aquarius Platinum crashed down 10.7p to 149p following the news that the Zimbabwean government has accepted a plan for its joint venture in the country to comply with controversial laws demanding 51 per cent of foreign miners' operations must be owned by locals.
After bid rumours around 3i made a return last week, Oriel Securities' Iain Scouller was adding to the talk by warning that “retaining the 'status quo' is not an option” ahead of next week's trading statement. The scribbler said a takeover approach was one possible scenario, as was a major restructuring or change in management, as the private equity firm – whose investments include luxury lingerie seller Agent Provocateur – crept down 1p to 208p.
Punters in Gulf Keystone Petroleum were also getting their bid hopes raised. The oil explorer, which has seen its share price shoot up on takeover speculation, announced that directors and employees will receive huge awards in the case of a sale of either the whole of the Kurdistan-focused group, or more than 50 per cent of its assets. With one City voice saying it was “inconceivable that you would do this if you didn't believe you were a takeover target”, the AIM-listed group spurted up 11.75p to 263.5p.
Meanwhile, Livingston-based Energy Assets was making its debut after floating at 210p-a-share, although the energy meter group – whose customers include British Gas – ended up dropping to 194p.
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