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News & Tips: Hutchison China Meditech, AstraZeneca, Stagecoach & more

Equities have taken a tumble
December 20, 2018

A further interest rate rise in the US, against the wishes of President Trump, has knocked sentiment towards shares despite a more dovish tone from the Fed towards 2019. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

Shares in Hutchison China Meditech (HCM) took another hit this morning after the group announced changes to its 2013 license and collaboration agreement on cancer drug fruquintinib with US partner Eli Lilly (US:LLY). The amendment effectively changes the roles and responsibilities of Chi-Med and Lilly, in China, for the development and commercialisation of fruquintinib, as well as collaborations for the development of fruquintinib with third-party anti-cancer agents as well as the promotion and distribution rights of fruquintinib. Chairman Simon To said Chi-Med was “stepping forward” to take on more responsibility in the development stage in order to reap more reward from the “future economic interest” of the drug. That includes a $12m (£9.4m)  increase in expected full-year R&D expense at the group’s innovation division to $142m-$152m. Without any further changes to financial guidance, we remain buyers.

Good clinical news should usually drive share prices upwards for pharmaceutical groups. Not so at AstraZeneca (AZN) this morning, which announced positive results from a third phase trial of cancer drug lynparza in patients with recurring instances of ovarian cancer, and well as third phase trials for anaemia treatment roxadustat. In two separate trials, roxadustat met primary endpoints - mainly relating to safety and efficacy - for the treatment of patients with anaemia in chronic kidney disease. But perhaps the good news wasn’t enough in the wake of GSK’s big announcement yesterday, during which it said it planned to split the company in two, to focus on consumer health and innovative drug development separately. This put Astra’s singular drug development strategy in stark contrast. Sell.

KEY STORIES:

Stagecoach (SGC) is officially selling its North American business. The public transport company first hinted at this possibility at the release of half-year results at the beginning of December. Now, the group has confirmed that it plans to offload the division - which included the Megabus brand - for an enterprise value of $271m (£214m) to an affiliate of Los Angeles-based private equity firm Variant Equity Advisors. The proceeds will be used to pay down debt, with the transaction expected to complete before the end of April 2019.

Faroe Petroleum (FPM) has issued a circular to shareholders rejecting DNO’s 152p-a-share bid for the company. Reiterating past comments, chairman John Bentley said the board strongly believes “that this offer is entirely opportunistic and that the terms fundamentally undervalue Faroe”.  The Aim-listed group, which is urging its investors to take no action, says the offer comes in at “half the average premium paid on all UK takeovers over the last 10 years”, and a discount of around 45 per cent to “the average price paid recently for comparable North Sea portfolios” – as calculated on a per barrel of 2P reserves basis. Analysts at RBC calculate that the 152p-a-share offer implies a long-term discount rate of $66 per barrel of Brent crude, $10 above the current price.

OTHER COMPANY NEWS:

As previously announced, ingredients business Greencore (GNC) is handing back money to shareholders by way of a tender offer. This morning, the company has priced the offer which, at 195p per share, represents a premium of 17.5 per cent to the closing price on 19 December - the day before this announcement. In aggregate, the tender offer will return £509m to shareholders, and will open today before closing on 29 January. If the full amount is not utilised by the close of the period, the balance will be returned via a special dividend.

Despite a mid-week rally shares in Indivior (INDV) didn’t react strongly to the publication of the terms of a new study on its opioid addiction drug Sublocade. The two-year Recover trial will be a multi-site study and will measure quality of life and employment in patients with opioid use disorder for up to two years after their participation the phase three trial. Earlier this week the group said it had officially started up contingency plans for the launch of a generic copy of its product Suboxone, one of which is to drive the commercial success of Sublocade.