Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

We explore the pharma giant’s growth strategy and the potential risks and rewards
Thursday 16 Aug 2018 Author: Lisa-Marie Janes

As the UK plans to leave the European Union, jitters over a no-deal Brexit have sparked a swathe of warnings about potential shortages of food, staff and crucially healthcare products.

One of the most concerning reports is that patients in the EU may not be able to receive medicines from the UK if AstraZeneca (AZN) and other major suppliers are not fully prepared for a no-deal Brexit.

WHAT DOES IT DO?

AstraZeneca is a global biopharmaceutical business that develops drugs for a range of diseases, including oncology, cardiovascular and metabolic diseases, as well as respiratory conditions.

The company also invests significantly in research and development, focusing on immuno-oncology, oncology and cardiometabolic diseases.

BLOCKBUSTER TREATMENTS

In 2017, cardiovascular and metabolic disease treatments contributed 36% of overall sales at $7.26bn.

Preventative heart attack drug Brilinta and cholesterol medicine Crestor dominated the top performers with sales of more than $3bn combined.

The second biggest area for AstraZeneca is respiratory, which raked in a combined $4.7bn, driven by asthma treatments Symbicort and Pulmicort.

Treatments for cancer and other diseases such as serious lung conditions generate the remaining 41% of sales.

Despite boasting a wide range of treatments, AstraZeneca is struggling to achieve any sales growth. As a group it failed on this measure in 2017.

Only the pharmaceutical giant’s oncology drugs portfolio enjoyed sales growth last year.

POTENTIAL ROADBLOCKS TO SALES GROWTH

A potential blockade to sales growth is plummeting sales of AstraZeneca’s cholesterol treatment Crestor after losing exclusivity in Europe and Japan.

In the first half of 2018, sales of Crestor dropped 42% to $727m.

A raft of new drugs and cancer treatments are struggling to offset a sharp decline of Crestor sales. New drug sales generated over $1bn in additional sales and oncology medicines enjoyed 42% revenue growth over the same period.

The impact of Crestor contributed to a 34% fall in operating profit to $2.16bn and a 5% drop in revenue. 

WHY HAS ASTRAZENECA STRUGGLED IN THE PAST?

In April 2012, then-CEO David Brennan quit following criticism from shareholders over his focus on smaller acquisitions and licencing deals.

A key point of contention was the acquisition of MedImmune in 2007 for $15.6bn as investors believed Brennan overpaid.

Brennan’s replacement, former Roche chief operating officer Pascal Soriot, has been working hard to fix these mistakes and rebuffed a Pfizer takeover bid at £55 per share in 2014.

Soriot decided to focus on cardiology, cancer and neuroscience and wants to deliver $45bn in group sales by 2023.

It is questionable if this is possible as sales are forecast to rise at AstraZeneca to $22.2bn at the end of this year before rising to $24bn in 2019 and $26.5bn in 2020 according to Reuters estimates.

Over the following three years, the company would need to deliver $18.5bn in new sales, effectively tripling its sales growth rate from 2019 to 2022.

Pre-tax profit is expected to increase from $4.64bn to $4.73bn in 2018 and is anticipated to jump to $5.46bn in 2019 and $7.11bn the year after.

WHAT ARE THE RISKS?

If someone invested in AstraZeneca when it first floated on the stock market in 1995, they would have benefitted from an advance in the share price of more than 600%.

These gains sounds impressive, but past performance is not a guide to the future and investors should remain cautious on the risks surrounding AstraZeneca.

UBS analyst Jack Scannell notes the pharmaceutical industry is undergoing significant change. In the US, for example, there is an increasing focus on affordability.

The ‘aggressive’ cost control means even if products demonstrate promising results in clinical trials they may still be effectively blocked if they are significantly more expensive than drugs which simply replace like-for-like.

‘We expect to see further M&A as companies aim to achieve greater focus in therapeutic areas (or decide to exit) or substantially enhance non-pharma activities,’ comments Scannell.

Other risks for AstraZeneca include the threat of healthcare reform to tackle exorbitant pricing of non-generic medicines.

TAGRISSO SET TO HIT $6BN IN 2023

In the second half of 2018, the company hopes to receive regulatory decisions for the likes of lung cancer drug Tagrisso and non-small-cell lung cancer treatment Imfinzi.

Tagrisso could be lucrative for AstraZeneca based on UBS forecasts. The investment bank estimates US sales of $2.8bn and global sales of $6.1bn in 2023.

This is a huge rise from expected US sales for Tagrisso of $238m in the third quarter of 2018.

Upcoming regulatory submissions are expected for several medicines, including ovarian cancer drug Lynparza and chronic obstructive pulmonary disease treatment Duaklir.

Other key news investors should look out for are Phase III data readouts for Imfinzi surrounding lung, head and neck cancers, as well as Farxiga for Type-2 diabetes. (LMJ)

‹ Previous2018-08-16Next ›