​Jupiter’s Radcliffe: US pharma giants are still ‘incredibly’ cheap


Jupiter Asset Management North America fund manager Sebastian Radcliffe says many US pharmaceutical companies are still “incredibly cheap”, thanks to a misconception about the regulatory environment in the industry.

The manager of the £472m Jupiter North American Income fund explains the recent negative sentiment surrounding US pharmaceutical companies, following concerns over research and development productivity in the sector.

He says: “Specifically for the big pharmaceuticals, many investors wrote off many of these companies because in their minds research and development productivity had collapsed to a level that you would just never see any kind of recovery again. And so as a result you had embedded negative internal enterprise values for many of these companies.”

However Radcliffe argues that the market “got ahead of itself” in this case, as the outcome of the decrease in research and development activity has in fact helped to create an opportunity in US healthcare.

He adds: “The rate of research and development productivity is going to be low going forwards but a lot of that has been mistaken for a much more stringent regulatory environment from the US Food and Drug Association. These large pharmaceutical companies actually do have decent pipelines and they are incredibly cheap still despite having appreciated quite a lot so far this year.

“You are getting discounts to the S&P for what is very stable top line revenue growth over the next few years and you are getting a much larger dividend yield than the market. So healthcare is still a very encouraging area to invest.”

According to the latest fund factsheet, the Jupiter North American fund has its second largest overweight in US healthcare, at 21.9 per cent.

Radcliffe also points to “valuation issues” elsewhere in the US market including telecoms, utilities and some consumer stapes. He says: “I think you do have some valuation issues in some parts of the market.

“Certainly not in the whole market where we are on a slight discount of 15x. For areas like utilities and telecomms, some consumer staples as a result of financial repression I think valuations have been driven to levels where you don’t really have that much of an attractive risk-reward basis.”