Stringent regulation, generic competition and cutbacks in government spending on healthcare have not deterred AXA Framlington’s Nigel Thomas from backing drugs giant GlaxoSmithKline.

The stock represents Thomas’ biggest holding, accounting for 4.6%, or £33 million, of his £1.4 billion UK Select Opportunities fund.

He sees excellent value in GlaxoSmithKline on a two to three-year view in the basis the generic competition the group faces is likely to slowdown. ‘Over the past three years GlaxoSmithKline has lost 32% of its pharmaceutical revenues to generics but between 2010 and 2014 the company is only expected to lose another 12% due to patent expires,’ Thomas explains. ‘Advair, is their largest drug to come of patent in the next few years, but not until 2016.’

Thomas also said the group has become much more efficient in research and development. ‘The R&D budget has remained at £3 billion year-on-year but phase three products,  i.e. those getting closer to market, have increased from six to seven to nearer 30.’

He also said emerging markets represent a significant opportunity for the firm given its growing presence in these areas. ‘GlaxoSmithKline is four times as big as the next biggest western pharmaceutical company in India,’ he pointed out.

According to Lipper, in the three years to the end of October Thomas has kept losses down to -3% on his UK Select Opportunities fund versus a -7.9% decline in the FTSE All Share.  

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Alongside pharmaceuticals, the oil sector is another core area for UK equity fund managers.