ii view: AstraZeneca buoyed by vaccine, but costs weigh

A Covid jab and the purchase of rare disease drug developer Alexion. Buy, sell, or hold?

Third-quarter results to 30 September

• Revenue up 50% to $9.87 billion ($7.4 billion)
• Core earnings per share up 14% to $1.08
• Net debt up 103% from December 2020 to $24.67 billion (£18.5 billion)

Guidance:

• Full year earnings guidance unchanged

Chief executive Pascal Soriot said:

“Our broad portfolio of medicines and diversified geographic exposure provides a robust platform for long-term sustainable growth. Following accelerated investment in upcoming launches after positive data flow, we expect a solid finish to the year and our earnings guidance is unchanged."

ii round-up:

Anglo Swedish pharmaceutical company AstraZeneca (LSE:AZN) added just over a billion dollars of Covid-19 sales to its third-quarter revenues in these latest results. 

The pharma giant’s $39 billion (£29.3 billion) summer takeover of North America’s Alexion Pharmaceutical contributed to $1.3 billion (£975 million) in quarterly rare disease sales. However, third-quarter adjusted, or core earnings per share of $1.08 missed analyst’s expectations, hindered by product launch costs and ongoing investments. 

Astra shares fell by around 4% in UK trading, although remain up by around a third since pandemic market lows in March 2020. Shares for US rival Covid-19 vaccine maker Pfizer (NYSE:PFE) are up by over 70% in that time, while UK rival GlaxoSmithKline (LSE:GSK) is up around 16%. 

Accompanying management earnings guidance for the full year remains unchanged at between $5.05 to $5.40 per share. Eight positive Phase III results had been achieved since June. 

Broker Morgan Stanley highlighted that Astra management expects a strong finish to the full year although investors may now contemplate higher R&D investments over the coming 2022 financial year. 

Oncology, or cancer related drug sales, accounting for a third of overall revenues, grew by almost a fifth during the quarter to $3.38 billion. Cardiovascular, Renal and Metabolism (CVRM) compounds revenues, generating around a fifth of overall sales, expanded by 16% to $2.08 billion. 

Group debt doubled since late December given the acquisition of Alexion. Fourth-quarter and full-year results are scheduled for 10 February. 

ii view:

AstraZeneca is a global, science-led biopharmaceutical company which operates in over 100 countries. Drug arenas include oncology; Cardiovascular, Renal and Metabolism (CVRM); Respiratory and Immunology (RI) products and now rare diseases. Over 7,000 rare diseases are known of but only around 5% have US Food and Drug Administration-approved treatments. 

As for its Covid-19 vaccine, developed with Oxford University, a new division for vaccines and antibody therapies is to be formed. Prior to the Covid crisis, Astra made just one nasal spray flu vaccine. Shingles vaccine Shingrix helped UK rival GSK recently report a 13% increase in its latest quarterly vaccine sales to £2.17 billion. 

For AstraZeneca investors, time spent developing and distributing its coronavirus vaccine has meant time away from its core business. The purchase of Alexion at what many analysts consider to be a full price is yet to be fully justified.  

But Astra intends to build on its own geographical footprint and extensive emerging markets presence to accelerate the worldwide expansion of Alexion's drug portfolio. Alexion revenues grew by 21% year-over-year to $5 billion in 2019. The Covid vaccine has raised Astra’s global profile significantly, and a maintained half-year dividend payment also leaves the shares sat on a historic and forward estimated yield of over 2%. For now, and with innovation high and new drug successes ongoing, Astra looks to remain worthy of ongoing long-term support. 

Positives: 

• New medicines accounted for 52% of 2020 total revenues
• Alexion adds to its diversity of drug treatments

Negatives:

• Other medicine sales including patents expiries fell 13% Y-T-D to $1.65 billion
• Debt has doubled due to the purchase of Alexion

The average rating of stock market analysts:

Strong buy