Mott: Pharma stocks to see ‘dramatic’ re-rating

Pharma stocks could be “dramatically re-rated” in the next three to four years, said PSigma’s Bill Mott, as analysts realise it is one of the few sectors that can deliver shareholder returns in the face of economic uncertainty.

This comes as Mott and Invesco Perpetual’s Neil Woodford are set to see their portfolios boosted by AstraZeneca’s jump in share price last week following FDA approval of the blood thinning drug Brilinta. 

The pharma giant forecast peak sales of $2bn over the next eight years from Brilinta, according to Jeremy Batstone-Carr, an analyst at Charles Stanley, so approval from the US regulator was key for AstraZeneca’s future earnings, particularly as the group is facing a number of drugs falling off patent.

Shares rose as much as 3.5% after the news on Thursday to settle around £31.36 a share.

Before this, AstraZeneca’s share price had been drifting downwards due to nervousness surrounding the approval of this product and the FDA’s advisory committee rejecting the approval of dapagliflozin, a diabetes drug.

However, Mott, who has 4.7% of the £452m PSigma Income fund in Astra and 17% of his overall portfolio in pharma, said the firm does not need new products to be attractive, and any drug approved is a “bonus”.

“The market ratings for pharma are assuming no biological advances in the next 13 years – this is a massive anomaly. It has good emerging markets presence and I think medical advances will occur. We will see dramatic re-ratings in the next three to four years.”

He predicts AstraZeneca’s yield will fall from its present level of 6% to 3%-3.5% as more focus is placed on shareholder returns. Mott also holds GlaxoSmithKline and overseas pharmas such as Novartis and Bristol-Myers Squibb.

Meanwhile, Woodford has AstraZeneca as his top holding in both the £11bn High Income fund and £8.6bn Income fund.

Earlier this year he described pharmaceuticals as the investment opportunity of the decade.