Sector Screener: reasons to back AstraZeneca’s return to health

AstraZeneca’s R&D facility, The Discovery Centre, in Cambridge, UK. Photo: Alex Kirkwood/Getty Images for AstraZeneca.

The FTSE 350 index’s upbeat performance over recent years is showing little sign of abating. It has risen by 1% in the past month, 10% in the last year and is now up 39% over the past five years.

However, rising inflation in the UK and across several developed economies such as the US and the eurozone is prompting central banks to implement a tighter monetary policy. This has the potential to ultimately weigh on economic growth, and the rate of increase in company profits, thereby prospectively harming the outlook for the UK stock market.

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And with conflict in the Middle East ongoing, and the war in Ukraine showing little sign of coming to an end, it would be unsurprising if investor sentiment towards the broader FTSE 350 index struggles in the short run.

As a result, sectors that offer a strong long-term growth outlook alongside a degree of defensive appeal could prove to be relatively attractive to investors over the coming months.

The pharmaceuticals and biotechnology sector appears to score relatively well on both fronts, while recent underperformance of the FTSE 350 index suggests there could be attractive value opportunities on offer with a favourable risk/reward ratio on a long-term view.

An upbeat growth outlook

In terms of the sector’s long-term growth potential, demand for a wide range of medicines is likely to persistently rise due to ongoing global demographic changes. According to the United Nations (UN), for example, the world’s population is forecast to rise from 8.2 billion in 2024 to 9.7 billion in 2050.

Alongside this, the world’s population is ageing. In fact, there were 16 people aged 65 or older for every 100 people aged between 20 and 64 in 2019. That figure is expected to rise, according to the UN, so that there are 28 people aged 65 or over for every 100 people aged 20-64 by 2050.

A larger and older world population means that a wide range of diseases are likely to become increasingly prevalent. For instance, according to the International Diabetes Federation, the number of adults living with diabetes is forecast to rise from 589 million at present to 853 million by 2050.

And with the annual number of new cases of cancer set to rise from 20 million to 35 million over the same period, according to the World Health Organization (WHO), demand for treatments for non-communicable diseases is likely to further increase.

This should provide a sustained catalyst for the financial performance of members of the FTSE 350 Pharmaceuticals and Biotechnology sector. Over the long run, this is likely to boost their capital returns and provide scope for an improved performance versus the wider index.

Source: ShareScope. Data at 10 November 2026. Past performance is not a guide to future performance.

An attractive risk/reward ratio?

The sector’s recent historical performance has been relatively disappointing. It has lagged the FTSE 350 index’s 10% rise over the past year, for example, by five percentage points. And over the past five years, the sector is eight percentage points down on the index’s 39% gain.

This could mean that several pharmaceutical stocks now offer relatively good value for money, and therefore scope for higher market valuations and subsequent capital gains, based on their long-term growth potential.

Their defensive appeal, moreover, may make them an increasingly attractive investment opportunity given near-term economic and geopolitical uncertainty.

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Although the sector’s performance is not entirely decoupled from the broader economic outlook, given the high cost of patent-protected medicines, their status as an essential item is likely to mean they experience less dramatic undulations in demand as a result of the economic cycle.

This, of course, does not mean that pharmaceutical and biotech firms are void of short-term share price volatility. The inherent boom/bust cycle of the industry, and the uncertainty that comes with pipeline investment and trials that seek to produce blockbuster drugs, means that near-term disappointments can lead to a sharp, and sometimes severe, decline in investor sentiment.

On a long-term view, though, the sector’s recent underperformance, inherent defensive characteristics and growth potential amid favourable demographic changes mean it could offer investment appeal.

An upbeat financial outlook

Source: ShareScope. Data at 10 November 2026. Past performance is not a guide to future performance.

FTSE 350 Pharmaceuticals and Biotechnology sector member AstraZeneca (LSE:AZN) appears to offer a favourable risk/reward ratio on a long-term view. It is well placed to capitalise on growing demand for treatments for non-communicable diseases such as cancer and cardiovascular disease as the world’s population grows and ages.

Indeed, the firm’s recently released third-quarter results showed that earnings per share (EPS) rose by 14% in the first nine months of the current year. For the full year, the company is forecast to post a 10% rise in EPS, with its bottom line set to increase by a further 12% on a per share basis in the next financial year.

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This rate of earnings growth is ahead of the typical mid-single-digit annual rise of FTSE 350 members. And with AstraZeneca’s business model likely to be less affected by heightened inflation and interest rate rises across several developed economies, its financial prospects could look increasingly appealing should FTSE 350 peers experience challenging operating conditions.

Sound fundamentals

Even though the company’s shares have surged 16% higher in the past month, they are up less than 4% in 2026 so far, thereby lagging the FTSE 350 index by over four percentage points since the start of the year. They currently trade on a price/earnings (PE) ratio of 20.4, dropping to 18.3 on a forward basis, and, while greater than the FTSE 350, it nevertheless suggests they offer good value for money based on the firm’s superior growth prospects.

AstraZeneca’s solid financial position also indicates it is worthy of a premium market valuation versus the wider index. Its net debt-to-equity ratio, for example, amounted to 50% at the time of its third-quarter results. Net interest cover in the first three quarters of the current year, meanwhile, was 10.9. Both figures suggest it is well placed to invest in its pipeline of new drugs.

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In fact, the company’s spending on research and development (R&D) rose by 9% in the first three quarters of the year, which was ahead of its 7% increase in revenue over the same period. Although this does not guarantee the discovery of blockbuster drugs, it is likely to improve the company’s chances of doing so in the coming years.

Long-term investment potential?

As per its industry peers, AstraZeneca’s share price is likely to be affected over limited time periods by updates to its pipeline and the impending loss of exclusivity on blockbuster drugs. As such, its shares could display elevated volatility in the short term - even though the company itself has defensive characteristics that are likely to appeal to investors amid an uncertain economic and geopolitical outlook.

On a long-term view, the company has exposure to areas that offer strong growth potential amid favourable demographic changes. When combined with its upbeat EPS growth outlook over the next two years and its relatively appealing market valuation, as well as the firm’s solid financial position, it appears to offer a favourable risk/reward opportunity versus the wider FTSE 350 index.

Robert Stephens is a freelance contributor and not a direct employee of interactive investor.