Interactive Investor

Why the City is happy with AstraZeneca’s results

29th July 2021 15:46

Graeme Evans from interactive investor

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It’s outperformed local rival GlaxoSmithKline for years, and the Covid jab giant has had a strong first half of 2021.

Covid-19 vaccine sales of $1.1 billion (£792 million) stole the headlines at AstraZeneca (LSE:AZN) today, despite efforts by the pharma giant to also highlight the benefits of its biggest ever acquisition.

Astra said it had supplied 700 million doses of the Covid-19 jab, which it developed alongside the University of Oxford, to 170 countries over the first half of this year, with sales trebling to $894 million (£644 million) in the June quarter alone.

It is providing the vaccine on a not-for-profit basis for the duration of the pandemic, although today's interim results show it did so at a loss of about $21 million (£15.1 million) in the period.

The vaccine flattered Astra's top-line performance, however, with revenues for the quarter up 25% at constant exchange rates to $8.2 billion (£5.9 billion) after also benefiting from better-than-expected results in oncology and in drugs tackling respiratory illnesses.

Morgan Stanley said underlying revenues growth of 12% for the second quarter compared with across 9% the first half, with cardiovascular drug Farxiga, leukaemia treatment Calquence and lung cancer drug Tagrisso the strongest performers.

Aside from the Covid-19 vaccine, the most significant development in today's results concerned Alexion, which Astra got on board last week after a pre-Christmas deal costing $39 billion.

The move broadens Astra's portfolio in rare diseases and also expands its presence in immunology drugs on the back of CEO Pascal Soriot's successful push into cancer treatments.

The combined company is expected to deliver double-digit average annual revenue growth through to 2025. More details on the near-term outlook were disclosed by Astra today when it said its revenues are now set to grow by a low twenties percentage in the current financial year and accompanied by an $0.3-$0.4 uplift in earnings per share of $5.05 to $5.40.

UBS analysts said the guidance was broadly in line with expectations, but that they believed investors should react positively to both Astra's standalone performance in the second quarter and the combined outlook with Alexion.

Shares in London's biggest stock have seen fluctuating fortunes during the pandemic, with a rise to 8,758p in November followed by a descent to below 7,000p by March. They were 58p higher at 8,324p today, although UBS has a “buy” recommendation and 9,200p target.

The cash flow benefits from the addition of Massachusetts-based Alexion should give Astra additional flexibility to reinvest in R&D and potentially boost mid-term dividend prospects

The entry into the rare diseases segment is particularly attractive, given that this is a high-growth therapy area with significant unmet medical need. Over 7,000 rare diseases are known today, but only about 5% have US Food and Drug Administration-approved treatments.

AstraZeneca, meanwhile, has had a positive influence on the valuation of the biggest stock on AIM, biotech business HUTCHMED (LSE:HCM). Its shares rose another 9% or 52p to a fresh record of 630p after well-received interim results on Wednesday alongside the disclosure it has started a phase two trial of oncology drug Orpathys with Astra.

HutchMed's valuation is now close to £5 billion, having been given a boost by a move to raise $615 million (£443 million) through the IPO of 104 million new shares in a primary listing in Hong Kong. The company now has three approved oncology drugs in China and is making significant inroads to approvals in Europe and the US.

The shares originally listed on AIM as Hutchison China MediTech in 2007 and generated big profits for those early backers who spotted the company's potential in China, where there are large unmet medical needs and a quarter of the world's cancer patients.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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