From Pfizer to Pfundamentals

Important Information

We want to make investing with us simple and straightforward for all of our clients.

Please select your investor type from the options below.

Alternatively you can register or log in to an existing account.

Please note that by making your selection here you are agreeing to the Woodford Investment Management Ltd Privacy Statement and to our Terms and Conditions.

Neil Woodford 18 November 2014 Est. reading: 4 min read

Following its aborted takeover advances earlier this year, Pfizer can return to make a renewed bid for AstraZeneca once the six month ‘lock-out’ expires on 26 November. Media speculation is already gathering pace on the subject of ‘will they? / won’t they?’ return with a renewed bid – it would be a big deal, in more ways the one, affecting not just shareholders but potentially the wider UK economy and healthcare patients globally.

At this stage, I suspect there is a 50/50 likelihood that Pfizer will approach AstraZeneca again. Some things have changed to make a deal less likely. The increased political opposition to ‘tax inversion’ deals, for example, where US companies buy overseas companies as a way of reducing their domestic tax obligations. This has already scuppered Abbvie’s proposed acquisition of Shire and some commentators suggest Pfizer’s attraction towards AstraZeneca may have cooled somewhat for the same reason.

Nevertheless, the original approach from Pfizer was not just about tax inversion. The proposed transaction also held considerable commercial logic – Pfizer doesn’t really have a pipeline of new drugs but AstraZeneca does. Buying AstraZeneca and its pipeline would therefore solve a major problem for Pfizer, particularly if they can buy it on the cheap.

At the time of the initial approach from Pfizer, we strongly believed that an independent AstraZeneca would achieve far better returns for its shareholders than the offer from Pfizer could have delivered. That remains the case, although six months on, our confidence in this belief is even stronger and the progress being made by the company is tangible.

Infographic showing the companies that Pfizer has acquired.

AstraZeneca is hosting an ‘investor day’ today at which it is updating on its strategy and long-term growth plans. My colleagues Paul and Stephen Lamacraft are attending the event and will report back with their thoughts later today but one thing is already clear: having been at the helm for a little over two years, Pascal Soriot is making rapid progress on the company’s turnaround. This is reflected in a very positive strategy statement this morning from the company and amply demonstrated by several recent important drug approvals and an impressive rebuilding of its clinical pipeline of new drugs. This includes 14 drugs in late-stage development in some significant therapeutic areas. Each has the potential to contribute meaningfully to future sales.

Once viewed as the company’s major weakness, we expect AstraZeneca’s pipeline to deliver considerable long-term future growth. The value of a pipeline is impossibly difficult to model with precision and this represents a key analytical failing as far as the pharmaceutical sector is concerned. Judgement is required here – not mathematics – and our judgement on the long-term value that lies in AstraZeneca’s pipeline remains overwhelmingly positive. We are impressed with the renewed vigour and clarity in AstraZeneca’s scientific research and believe that its core franchises of respiratory, cardiovascular & diabetes, plus its presence in sectors of growing importance such as immuno-oncology, should all contribute to very promising future long-term growth.

AstraZeneca’s target to increase revenues by three quarters over the next decade is a tough one, but one which we believe can be achieved. The market clearly remains sceptical about the company’s ability to deliver on this target, albeit arguably less so than six months ago. Nevertheless, this does provide Pfizer with an opportunity to exploit in the near term.

If Pfizer are to return with a renewed bid, shareholders will again be faced with a choice between the allure of a substantial short-term profit or the promise of a potentially much more valuable long-term future from an independent AstraZeneca. Clearly, the former option can be embraced with much more certainty than the latter and, it is the nature of the modern stock market to focus detrimentally on the short-term. However, in this instance, we believe that it would be a mistake to do so, for two reasons.

Firstly, AstraZeneca’s promising pipeline stands a much better chance of fulfilling its potential if it remains independent rather than in the hands of a potential acquirer.

The pharmaceuticals industry has a poor track record when it comes to merger & acquisition (M&A) activity. Too many deals have been pursued for the wrong reasons at the wrong price. AstraZeneca itself is the product of a merger but its more recent M&A activity has been more modest in scale and based on attractive financials.

Pfizer too, is a company built by acquisition: Warner-Lambert in 2000, Pharmacia in 2003 and then Wyeth in 2009. Indeed, the combined amount spent on these three acquisitions exceeds Pfizer’s current market capitalisation1, implying that substantial shareholder value has been destroyed through M&A along the way. It would be disappointing to see the same fate befall AstraZeneca, not just for its shareholders.

Secondly, we simply do not see how Pfizer can afford to pay what we believe the AstraZeneca pipeline will be worth in the long-term. Clearly, if Pfizer were to return with a renewed bid we would analyse it carefully before deciding whether to support it or not, as would other shareholders. However, its previous attempts to acquire the company fell a long way short of the long-term value that we believe AstraZeneca can independently deliver.

So, although the ‘will they? / won’t they?’ speculation about Pfizer’s intentions may continue over the next few weeks, we prefer to focus on the fundamentals and are happy with the way the long-term investment case is developing.

What are the risks?

  • The value of the fund and any income from it may go down as well as up, so you may get back less than you invested
  • Past performance cannot be relied upon as a guide to future performance
  • The ongoing charges figure is charged to capital, so the income of the fund may be higher but capital growth may be restricted or capital may be eroded
  • The fund may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits – some of these security types could increase the fund′s volatility and increase the level of indirect charges to which the fund is exposed
  • The fund may invest in overseas securities and be exposed to currencies other than pound sterling – as a result, exchange rate movements may cause the sterling value of investments to decrease or increase
  • The fund may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value

Important information

Before investing, you should read the Key Investor Information Document (KIID) for the fund, and the Prospectus which, along with our terms and conditions, can be obtained from the downloads page or from our registered office. If you have a financial adviser, you should seek their advice before investing. Woodford Investment Management Ltd is not authorised to provide investment advice.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund′s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at www.fundinfo.com.

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

© 2019 Woodford Investment Management Ltd.
All rights reserved.

Are you sure?

By disagreeing you will no longer have access to our site and will be logged out.

Privacy Preference Center

Experience Tracking

Lets our analytics service track you across our different websites and enables data sharing among our different marketing tools.

AMCV_[Tracker ID]@AdobeOrg (Adobe), [Tracker ID]@AdobeOrg (Adobe)
Adobe Analytics (helps us provide you with more relevant experiences and content based on your likely interests). Cookies: demdex, dextp, dpm, DST, DSTJS
Twitter personalisation (by better understanding how devices are related, Twitter can use information from one device to help personalize the Twitter experience on another device). Cookies: personalization_id
Heap Analytics (provides metrics on user behaviour and actions throughout the site). Cookies: _gid, _hp2_id.[Tracker ID],_hp2_props.[Tracker ID], _ga, _mkto_trk, optimizelyBuckets, optimizelyEndUserId, optimizelySegments, raygun4js-userid, _attribution_referrer, _csrf
Adobe Analytics (provides you with more relevant experiences and marketing messages based on your likely interests). Cookies: _tmae ,ev_sync_dd,ev_sync_yh,everest_g_v2,gglck

Traffic Metrics

Allows Woodford to aggregate information on website usage and popular content

_ga, _gid
Google Analytics (tracks and reports website traffic and user behaviour): Cookie: CONSENT
New Relic (application and server performance monitoring – allows us to spot problems with our website code and improve them to keep things running smoothly). Cookie: JSESSIONID
Adobe Analytics (provides you with more relevant experiences and marketing messages based on your likely interests). Cookies: __qca,__smToken, _ga, _mkto_trk, _rtbmedia

Search History

Populates the 'recent searches' section of the website navigation.

wf__recent_searches_untracked

Close your account?

Your account will be closed and all data will be permanently deleted and cannot be recovered. Are you sure?