AstraZeneca undervalued before Pfizer talk – top 10 investor
AstraZeneca results presentation at ASCO conference may be factor in Pfizer move now
Good results could boost AZN shares
AstraZeneca’s [LON: AZN] share price did not include potential upside value of its cancer drug pipeline before reports of Pfizer’s [NYSE:PFE] takeover interest, a top-ten investor said. A takeover price closer to GBP 60 per share rather than GBP 50 may be needed to secure shareholder support, he said.
The investor had not yet been contacted by Pfizer, but expected to be contacted. Pfizer confirmed Monday it had submitted a non-binding “indication of interest” in January. It made another approach on 26 April to renew discussions, following leaked reports on the initial approach.
AstraZeneca rebuffed the proposal Monday saying Pfizer’s proposed 30/70 cash-and-scrip offer “very significantly undervalued” the company. Pfizer’s 5 January proposal had an indicative value of GBP 46.61 per share. AstraZeneca shares shot up to close Monday up 14.83% at GBP 46.685.
The investor said that shareholders would want to make sure a deal is at the right price, including the upside potential from the oncology pipeline. Oncology is potentially a mega-blockbuster area, he said, pointing to their melanoma drug pipeline. The blockbuster drug pipeline was not priced in before the bid interest, he explained.
AstraZeneca shares had become “very cheap” relative to its pipeline’s potential, the investor said. Pfizer should not be allowed to share in that value without offering more than its initial GBP 46.61-per-share proposal, he said.
Ian Read, Pfizer’s CEO, touted AstraZeneca’s oncology drug pipeline as a key reason for the takeover interest, alongside a tax inversion and operational synergies, in two conference calls Monday. Combining AstraZeneca’s early- and mid-stage developments with Pfizer’s established business would create a stronger company with a deeper portfolio, Read said.
Pfizer now has a 26 May 2014 “put up or shut up” firm bid deadline under Rule 2.6(a) of the UK Takeover Code.
Pfizer may have an eye on the industry’s key American Society of Clinical Oncology (ASCO) conference beginning 28 May in Chicago, a sector banker said. It may have wanted to get a starting price into the market before this, as AstraZeneca is set to present a round of results on its oncology pipeline at the conference, he said. A good series of results could bump the company’s underlying valuation, the banker said.
AstraZeneca's will present at ASCO numerous scientific abstracts for compounds across its oncology pipeline, including the monotherapy studies for biologics MEDI4736 and AZD9291.
Read told an analyst call Monday that recent asset valuations in the industry and movements in the market prompted Pfizer to move now. An evaluation of Pfizer’s own pipeline and developments in AstraZeneca’s outlook were also factors, he said.
Asset swaps between pharma companies have become the new paradigm in the industry, former Covance CEO and professor at Warwick Business School John Lyon said. The reason for Pfizer looking at a full takeover could be that it has nothing of interest to swap with AstraZeneca, he said. Pfizer is likely to come back with a higher offer, Lyon said.
AstraZeneca’s share price may be fairly valued now, following the takeover speculation, Lyon suggested. This would mean any premium should be against today’s share price.
Meanwhile, Read would not rule out going hostile, but said he would prefer to discuss the potential deal with AstraZeneca’s board. “We believe we’ll be able to make an offer that’s attractive to AstraZeneca shareholders and their management,” he said.
Corporate governance problems at AstraZeneca should not overshadow the value of its oncology pipeline, the investor said. Those problems were highlighted last week when nearly 40% of shareholders voted against AstraZeneca management's remuneration package.