The Zacks Analyst Blog Highlights: Microsoft, AstraZeneca, Roche Holdings, Amgen and Bristol-Myers Squibb

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Oct 10, 2012, 09:30 ET

CHICAGO, Oct. 10, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Microsoft Corp. (Nasdaq:MSFT), AstraZeneca (NYSE:AZN), Roche Holdings Ltd. (OTC:RHHBY), Amgen (Nasdaq:AMGN) and Bristol-Myers Squibb (NYSE:BMY).

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Here are highlights from Tuesday's Analyst Blog:

Microsoft Snaps Up PhoneFactor

Software giant Microsoft Corp. (Nasdaq:MSFT) recently announced that it has acquired PhoneFactor, a company that uses smartphones for security authentication. The financial terms of the deal were not disclosed.

Overland Park, KS-based PhoneFactor is a multifactor authentication (MFA) applications provider selling phone-based products for enterprise applications. Its technology is compatible with both Microsoft enterprise products and platforms from other vendors.

The MFA applications provider already works with many Microsoft products and services, including Outlook Web Access and Internet Information Services, and interoperates with Active Directory.

Management also stated that for now, PhoneFactor will continue to operate independently and sell its products as a stand-alone service with existing pricing and contracts. Upon the completion of the deal however, PhoneFactor's technology will be licensed under Microsoft's volume licensing contracts.

The multi-factor authentication technology is designed to protect enterprise services and applications from data breaches if user passwords are unethically stolen by a hacker. A user needs more than just a password to log into websites that use PhoneFactor's technology. A code is to be entered as an added level of identification. This code is sent to the user's phone via text or an automated phone call.

This type of authentication is specially required in business and enterprise environments, where it is important to protect sensitive information. Hence, the acquisition will enable Microsoft to enhance the security of business mobile applications, its cloud services and other applications.

Microsoft remains one of the best positioned software vendors, given its wide range of products, emerging markets strength, continued technology deployment at data centers and growth in cloud computing. We believe that Microsoft's current investments are supported by its strong balance sheet and expect these to drive the next growth phase, improving prospects of market share gains.

AstraZeneca Licenses Ardelyx Drugs

AstraZeneca (NYSE:AZN) recently announced that it has entered into a global exclusive licensing agreement with Ardelyx for the latter'sNHE3 inhibitors. The deal includes Ardelyx's lead candidate, RDX5791, an orally administered NHE3 sodium transport inhibitor. RDX5791 is being developed for constipation-predominant irritable bowel syndrome/IBS-C (phase II) and the prevention of sodium overload in patients with end-stage renal disease (ESRD), chronic kidney disease (CKD) and heart disease (completed phase I).

As per the terms of the agreement, AstraZeneca will make an upfront payment of $35 million and milestone payments of $237.5 million, on the achievement of launch and commercialization targets, to Ardelyx. Additionally, AstraZeneca will pay tiered double-digit royalties on net sales of the candidates developed under the collaboration.

While Ardelyx will conduct the phase II trials, AstraZeneca will bear the subsequent development costs. Meanwhile, Ardelyx also has an option to co-promote RDX5791 in the US, subject to certain pre-specified conditions.

Apart from the licensing agreement, AstraZeneca was also in the news recently when it suspended its share repurchase program. The company has repurchased shares worth $2.3 billion during 2012. The company was targeting net share repurchases of $4.5 billion in 2012. The termination of the share repurchase program will not affect the 2012 earnings guidance of $6.00 - $6.30 per share.

This step was taken by the new Chief Executive Officer (CEO) Pascal Soriot, who joined AstraZeneca in August 2012 from Roche Holdings Ltd. (OTC:RHHBY) to maintain flexibility while he reviews AstraZeneca's annual strategy.

Our Recommendation

We are encouraged by AstraZeneca's focus on the high-potential emerging markets. We are pleased with its efforts to expand its pipeline and portfolio through mergers and acquisitions.

The Ardelyx agreement, Ardea acquisition, the Amgen (Nasdaq:AMGN) collaboration and the expansion of the diabetes alliance with Bristol-Myers Squibb (NYSE:BMY), all represent the company's efforts in this direction. We expect more such deals in the near term.

However, we remain concerned about the generic competition faced by the company's key products. In 2011, the company lost revenues worth almost $2 billion to generic competition. The weak late-stage pipeline at AstraZeneca coupled with slow Brilinta uptake also bothers us.

We currently have a Neutral recommendation on AstraZeneca. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

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