Speaking to InvestorDaily, InSync Funds Management's Nitesh Patel said there has been a lull period since the mid-2000s in regards to pharmaceutical companies releasing drugs to the market, which is now coming to the end.
Mr Patel said consolidation within the large cap pharmaceutical industry will also drive earnings growth because it will allow pharmaceutical companies greater economies of scale and a greater focus on therapies.
“We still think deals across the industry are likely to happen and have happened, either in the form of pure merger and acquisitions, joint venturing, the sharing of assets or the sharing of practices,” said Mr Patel.
He said this “effectively decreases cost, increases barriers to entry and ultimately increases cash flow”.
He noted the takeover action occurring between Pfizer and AstraZeneca, and predicted it will result in stronger dividend flows to the sector.
While the deal is yet to be completed and has been rejected by the acquirer, Mr Patel said if it does go ahead, the companies will benefit from “the domiciling of tax from the US to Europe”, resulting in a tax saving of potentially 500 to 1,000 basis points in tax rate.
He said the reduced costs and potential pipeline of drugs to come from AstraZeneca will also drive returns.
“Insync has been a long-term investor in prescription drug companies and we like the dividends and strong year-on-year growth as these companies service the needs of an ageing middle class around the world,” said Mr Patel.
“The pharmaceutical sector continues to be undervalued, based on Insync’s analysis, as the pipeline of new drugs starts to generate stronger revenue and earnings growth.”
