ii view: drug giant AstraZeneca upgrades annual sales forecast

Shares in the UK’s biggest company are up more than a fifth in 2022 so far. We assess prospects following its latest results. 

Second-quarter results to 30 June

• Revenue up 31% to $10.77 billion (£8.83 billion)
• Core earnings per share up 92% to $1.72
• Interim dividend up 3.3% to $0.93 per share
• Net debt up 1.5% to $24.68 billion from December 2021

Guidance:

• Now expects full-year revenues of to grow by a low twenties’ percentage (previously high teens)

Chief executive Pascal Soriot said:

“AstraZeneca had a strong financial first half of 2022, and great pipeline delivery. We announced practice changing data for several medicines including Enhertu in breast cancer, Farxiga in heart failure and Ultomiris in neuromyelitis optica spectrum disorder.”

ii round-up:

Pharma giant AstraZeneca (LSE:AZN) today reported strong second-quarter results, pushed higher by growth in oncology, or cancer treatments.

Total quarterly revenue rose 31% to $10.77 billion, with core earnings per share of $1.72, surpassing analyst estimates of nearer to $1.58. Full-year revenue guidance has been raised, with demand for Astra's Covid related treatments now expected to be broadly flat compared to a prior prediction of a low to-mid-twenties percentage decline.

AstraZeneca shares drifted marginally lower in early UK trading having risen by 25% year-to-date coming into this latest announcement. Full-year earnings guidance was left unchanged. Shares in rival GSK (LSE:GSK), which has just demerged its consumer healthcare business Haleon (LSE:HLN), are down 12% during 2022, while vet medicines maker Dechra Pharmaceuticals (LSE:DPH) has fallen by around 30%. 

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Demand for Astra’s Covid-19 antibody drug Evushel has been offsetting declining sales of its vaccine Vaxzevria, underpinning management’s raised full-year sales estimate. 

Full-year core costs are expected to rise by a mid-to-high teens percentage, driven in part by the integration of its rare disease treatment maker Alexion, along with increased R&D and drug launch spending following both positive trial data and launches, including Evusheld.

Oncology related product sales rose 15% to $3.81 billion during the quarter, while Cardiovascular, Renal and Metabolism (CVRM) treatments grew by 14% to $2.35 billion, pushed by its heart failure drug Farxiga. 

Geographically, and including its Covid vaccine, drug sales in the US led the way during the quarter, rising 72% to $4.34 billion and including its previous US Alexion acquisition. European sales gained by over a fifth while sales in China fell 6% to $1.43 billion, hindered by government pricing policies.

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Broker Morgan Stanley retained its overweight stance on the shares following the results, summarising the figures as broadly in line with City hopes on an underlying basis. 

The interim dividend of $0.93 per share is up from last year’s $0.90 per share payout. Third-quarter results are scheduled for 10 November. 

ii view:

Founded in 1999 through a merger of Sweden's Astra and Britain's Zeneca Group, pharmaceutical and biotechnology company AstraZeneca today operates in over 100 countries. Its core drug arenas include both cancer treatments and drugs for Cardiovascular, Renal and Metabolism (CVRM). A previous $39 billion acquisition of North America’s Alexion has significantly strengthened its rare diseases treatment portfolio. Over 7,000 rare diseases are known of, but only around 5% have US Food and Drug Administration-approved treatments.

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For investors, ongoing investment costs in drug development continue to weigh. The previous purchase of Alexion at what was considered a full price is also yet to be fully justified, while sales in China are declining, hindered by national pricing policies.  

On the upside, there’s progress in drug innovation, and approvals and cancer treatment sales total around a third of overall sales. Astra should also be able to further leverage its own geographical footprint and extensive emerging markets presence to extend Alexion rare disease sales. For now, and with analysts currently estimating a fair value share price of around £116, AstraZeneca is likely to remain a popular stock in many investment portfolios.

Positives: 

• Cancer treatment sales now total around a third of overall sales
• Alexion adds to its diversity of drug treatments

Negatives:

• Other medicine sales including patent expiries fell 17% to $427 million
• Net debt rose following the purchase of Alexion

The average rating of stock market analysts:

Buy