AstraZeneca continues to outperform the market following an upgrade from its corporate broker.
Morgan Stanley has raised its recommendation from equal weight to overweight with a £36 price target, which is helping to push the pharmaceutical company's shares 57.5p higher to £31.11. One of Morgan Stanley's suggestions is that companies in the sector should increasingly outsource their research and development operations, partly to cope with increased pressure on revenues and margins. Analyst Andrew Baum said:
A decade of dismal R&D returns is likely to spur a move to externalise research, with deep cuts in in-house early-stage research. Our analysis suggests this model could create material value for shareholders through higher earnings and multiples.
We expect several companies to materially shrink their research commitments and increase their reliance on externally sourced compounds.
The bank said it expected AstraZeneca - which employs 12,000 people in its research departments around the world - to "be among
the leaders in externalizing research, and this is a key driver of our upgrade of [the company] to overweight." It added:
We model that AstraZeneca diverts $1bn per annum away from research and into in-licensing enabling significant bolstering of its sparse pipeline.
