There’s a nice giddy feeling whenever one of your holdings makes a double digit leap in a day. Shares in AstraZeneca (LSE: AZN), the UK’s second biggest pharmaceutical company, hiked 14% on bid speculation this week.
But Pascal Soriot, Astra’s chief executive, doesn’t appear keen on the advances of Pfizer, the US giant which closed its UK R&D centre in Kent two years ago. Commenting generally on takeovers, Soriot mused: “Sometimes they can work, but often they are very disruptive“.
You’re unlikely to secure your financial future on short term price fluctuations, however. Indeed, initial discussions over a £60bn takeover ended, reports suggest, many months ago. What’s more the talks were merely tentative, and while analysts suggest Pfizer may advance more aggressively, we’re dealing in speculation here.
Pfizer has since sought to renew discussions, and has until 26 May to make a firm offer in accordance with UK regulations, but that doesn’t mean Soriot will play ball. If you pile into AstraZeneca purely on the weekend’s press reports, then it’s akin to spinning a roulette wheel.
We saw the same thing with Vodafone (LSE: VOD) earlier this year, and once predator AT&T put an end to months of conjecture by ruling out a potential bid, Vodafone shares fell 6%. As an investor what should concern you is not what AstraZeneca’s shares will be doing this time next week, or what Vodafone’s share price will be in June, but things like “Is this a solid business that I feel comfortable with for the long haul?“, “What kind of industry am I investing in?” and “How much profit does the sector produce?”
Let’s take a closer look at AstraZeneca and Vodafone:
AstraZeneca
A basic rule of thumb is that you should only invest in companies you understand. So, do you know the significance of Phase I, II and III trials? If not, then it’s worth a quick refresher.
All medicines, naturally, need both to be safe and proven to work. Phase I trials are done with small sample groups, of maybe only a few patients, looking at issues such as safe dosage ranges and side effects. After this the medicine will undergo Phase II trials with larger groups of patients, looking at how well the treatment works and what specific things the drug is effective against (eg, if it’s an anti-cancer agent, which cancers does it work best for).
If Phase II goes well it will be followed by Phase II trials, in order to determine the drug’s effectiveness against existing treatments. Only after a successful Phase III will the drug be granted a marketing licence.
AstraZeneca has a number of promising cancer treatments nearing the market, including olaparib, which has been granted Priority Review by the US FDA to speed up its development and availability. AstraZeneca’s drugs pipeline is of utmost priority to curb the effects of increasing competition from generic drugmakers. In AstraZeneca’s recent results a total of four new treatments made it to Phase III testing.
Pascal Soriot’s strategy has been to invest in the drugs pipeline, and it should pay dividends.
Vodafone
The irony is that, for all the talk of Vodafone being easy prey for AT&T, with £20bn to spend from the Verizon sale Vodafone is eyeing up targets of its own. Vodafone has already spent £6bn on the Spanish telecoms operator Ono, demonstrating a commitment to turning around its struggling European business. Similarly, heavy investment in new network technology should also help Vodafone attract new customers.
