AstraZeneca (LSE: AZN), Dechra Pharmaceuticals (LSE: DPH) and Tissue Regenix (LSE: TRX) represent a great healthcare combination. They are exposed to different segments of the industry, and are also diversified by their different sizes and growth and income profiles.
What’s more, the shares of all three companies look very buyable at their current levels.
AstraZeneca
Big pharma firm AstraZeneca is a £53bn FTSE 100 giant. The company has seen earnings decline over the past few years, as patents have expired on some of its money-spinning products; not helped by previous management’s lack of clear vision.
However, under chief executive Pascal Soriot — poached from Swiss powerhouse Roche in 2012 — Astra’s research has been reinvigorated, and the company has focused down to selected areas, including cancer, and cardiovascular and respiratory diseases.
Newsflow has been largely positive, and the decline in earnings is beginning to bottom out. Nevertheless, Astra’s shares are currently 23% lower than a 5,500p a share takeover approach made by US giant Pfizer last year — an approach rejected by Astra’s board as undervaluing the company.
Astra offers an above-average dividend yield of 4.3%. The dividend hasn’t increased in recent years, and isn’t expected to for a couple more yet, but it shouldn’t be too long before the market starts looking ahead to the prospect of a return to earnings and dividend growth. So, the opportunity to buy a slice of a solid, defensive blue chip, on a good starting yield, ahead of improving sentiment, appears attractive.
Dechra Pharmaceuticals
You might think from the name that Dechra Pharmaceuticals is in the same business as Astra. However, Dechra’s market is very different. This £825m FTSE 250 firm is a specialist in veterinary pharmaceuticals.
Dechra, which released its annual results today, is growing strongly; both organically and by acquisitions. For its financial year ended 30 June, the company reported top line growth of 10% and underlying earnings growth of 17% (both at constant exchange rates). Since the year end, Dechra has announced a takeover offer for Croatian firm Genera, which will give Dechra exposure to the fast-growing vaccines market and a lower-cost manufacturing base.
Dechra is trading at 23 times the annual earnings reported today, which is higher than the average FTSE 250 firm. However, this is a fast-growing firm with excellent prospects, and the shares are currently 12% off their highs of earlier this year. A 10% increase in the annual dividend announced today adds a modest yield of 1.8%, which can be usefully reinvested to compound growth.
Tissue Regenix
Tissue Regenix is a very different business again. This £140m AIM-listed company could be described as a “blue-sky” bet. However, I believe Tissue Regenix’s prospects are much superior to many stocks of a blue-sky nature.
For one thing, the company has genuine and valuable intellectual property: namely, patented decellularisation technology, which “removes DNA and other cellular material from animal and human tissue leaving an acellular tissue scaffold which is not rejected by the patient’s body and can then be used to repair diseased or worn out body parts”. For another thing, Tissue Regenix is rapidly commercialising its lead product into the US acute care chronic wound market. Early revenues are expected to start flowing next year, and other products are in advanced stages of development. Finally, it might be added that renowned fund manager Neil Woodford has a 15% stake in the company.
Tissue Regenix, then, is a smaller company with high growth potential (paying no dividend), which could provide a turbo boost alongside mature AstraZeneca and growth-and-income mid-cap Dechra.