AstraZeneca PLC (LON: AZN)

AstraZeneca PLC is a FTSE 100 listed science-led biopharmaceutical company, which focuses on the development, commercialisation, and discovery of prescription medicines. It was established on 6 April 1999 after the merger of Astra AB and Zeneca Group PLC. It is headquartered in Cambridge, United Kingdom. Presently, the merged entity AstraZeneca is present in over 100 countries. Currently, the Company has a robust pipeline in place with 166 projects in clinical pipelines and 9 new molecular entities in the late-stage pipeline. The research and development (R&D) expenditures were around US$6 billion in 2019, and R&D platforms are currently focussing in three major areas – Oncology, Renal, Cardiovascular & Metabolism and Respiratory & Immunology. The Group employs over 70,600 people, while around 45.4% of senior positions are led by women and over 3,100 employees holding PhDs.

  (Source: Presentation, Company Website)

Growth Prospects and Risk Assessment

The Company has accelerated growth organically and through acquisitions. For example, the recent collaboration with Daiichi Sankyo will help in launching Enhertu, to expand their pipeline in Oncology. Moreover, there are 166 projects in the pipeline, with 9 new molecular entities in the late-stage pipeline. Considering the changing healthcare trends, AstraZeneca has refreshed the strategic focus towards the requirement of 2025. It is focusing on understanding the disease better and developing innovative medicines and redefining clinical trials. In 2019, the Group had a growth of 22 drugs in pipeline with 24 progressions on an average in the past four years.

The Company keeps on launching new platforms and upgrade the old products and services to become one of the market leaders in the healthcare market. For example, the commercialisation of Calquence (acalabrutinib) in the European Union can be a significant step for future growth since there were around 105,000 new cases globally in 2016 with chronic lymphocytic leukaemia and numbers are expected to grow. Similarly, the recent approval of Breztri Aerosphere will help in treating around 384 million people globally.

(Source: Refinitiv, chart created by Kalkine Group)

Source: Refinitiv, chart created by Kalkine Group)

The financial guidance for FY20 remained intact, while they have beaten projections for H1 FY20 results with strong drug sales. Also, the Company demonstrated the overwhelming success of Tagrisso in the ADAURA trial by expanding the potential beyond diabetes. Moreover, the collaboration with Daiichi Sankyo will bolster the Oncology portfolio. Furthermore, the new trials of Calquence and Farxiga for usage to treat coronavirus patients is a significant response to Covid-19 pandemic.

Regarding the risk factors, the Company’s performance is subject to various kinds of risk - failure or delay of pipeline and new medicines can impact the growth trajectory, failure to meet ethical or regulatory requirements can cause heavy penalties and reputational damage. Moreover, there is a commercialisation risk pertinent to affordability and pricing of drugs due to competitive pressure. Also, during the Covid-19 and Brexit uncertainties, there is a risk to supply chain and operational costs. Furthermore, the recessionary economic conditions can put pressure over the strategic targets. 

Peers Benchmarking

(Source: LSE data, chart created by Kalkine Group) 

Industry Outlook Dynamics

Amid sluggish global economic outlook and rising global trade tensions, the market size for the worldwide healthcare market is projected to top US$2 trillion mark in 2020 (according to the report from Research and Markets). Adjacently, as per the report from the IQVIA Institute for Human Data Science, global pharmaceutical spending is projected to hit USD 1.5 trillion in 2023, projecting a CAGR of 3% to 6% between 2019 to 2023. At the same time, pricing, patient exclusivity, and regulations are presenting challenges as well as opportunities.

(Source: UK Public Spending, chart created by Kalkine Group, and Company Presentation)

The rapid growth in the overall and ageing population will increase the need for drug requirement. The World Economic Forum projected that non-communicable diseases (NCDs) could incur the cost of USD 47 trillion to the global economy by 2030 as the number of NCDs death had risen from 31 million in 2000 to 41 million people in 2016. Moreover, increasing urbanisation will also lead to greater wealth and better healthcare requirement. Further, as per Strategy Analytics, it is estimated to have 38 billion internet-connected devices to be installed by 2025 globally. In 2019, Global pharmaceutical sales were also increased by 6% to USD 1,033 billion (as compared to USD 975 billion in 2018).

After having an understanding of the industry dynamics, we will analyse some key fundamental and shareholders statistics of AstraZeneca PLC 

Recent Developments

On 20 October 2020: The Company stated that Tagrisso had received acceptance for the sNDA (supplemental New Drug Application). In the US, it has also been granted Priority Review for the adjuvant treatment of patients with early-stage EGFRm (epidermal growth factor receptor-mutated) lung cancer.

On 19 October 2020: In the European Union region, AstraZeneca's Forxiga (dapagliflozin) has been recommended for an indication extension of the marketing authorisation, which is for the treatment of symptomatic chronic heart failure.

On 19 October 2020: The Company stated that Trixeo Aerosphere had recommended for approval in the European Union. The approval is for maintenance treatment in adult patients with moderate to severe COPD (chronic obstructive pulmonary disease).

On 12 October 2020: AZN stated that the two trials of AZD7442 (AstraZeneca's long-acting antibody (LAAB) combination) would enrol more than 6,000 adults for the prevention of COVID-19, with additional trials enrolling approximately 4,000 adults (which is for the treatment of SARS-CoV-2 infections). The Company has received the support of approximately US$486 million from the US Government, which was for development and supply of up to 100,000 doses. It can acquire another one million doses in 2021.

On 2 October 2020: For US patients, AstraZeneca's Farxiga (dapagliflozin) has been granted Breakthrough Therapy Designation (BTD), with CKD (chronic kidney disease), with and without type-2 diabetes (T2D).

On 10 September 2020: the Company announced that it would be transferring the listing of the ADRs (American Depositary Receipts) and the US-listed debt securities from the NYSE (New York Stock Exchange) to the Nasdaq Global Select Market and Nasdaq Bond Exchange, respectively. 

Financial Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 30 July 2020)

(Source: Company Website)

• Despite unprecedented times caused by the COVID-19, the Company witnessed a strong financial performance in H1 FY20, with an increase in the revenue across the portfolio of products and therapies in all locations.
• Led by the improved performance of new medicines business and growth across therapy areas, the total revenue surged by 12% year-on-year on AER basis and the operating profit increased by 57% year-on-year on AER basis in H1 FY20.
• The Company witnessed a strong balance sheet, with a cash balance of US$5,673 million as on 30 June 2020.
• The Board has recommended an unchanged first interim dividend per ordinary share of US$0.90 (69.6 pence, 7.87 SEK).
• Overall, the Company delivered a strong performance during the pandemic, with robust research and development activity and sustainable results from the pipeline.
• Further, in FY20, total revenue is projected to surge by a high single-digit to a low double-digit percentage, while EPS should increase by a mid to high-teens percentage.
• The Company’s focus is on Emerging Markets, especially China and other leading markets, such as Russia and Brazil, to improve the market share and global presence.
• It is also focussing on understanding the disease better and developing innovative medicines and redefining clinical trials.

Financial Ratios

Share Price Performance Analysis 

(Source: Refinitiv, chart created by Kalkine Group)

On 22 October 2020, at the time of writing (before the market close, at 8:21 AM GMT+1), AstraZeneca Plc shares were trading at GBX 7,793, down by 1.60% against the previous day closing price. Stock 52-week High was GBX 10,120.00 and Low of GBX 5,871.00, respectively.

From the technical standpoint, 14-day RSI (oversold zone) is currently supporting an upside move (around 20.72 level), which means the stock price could increase in the short term.

In the last year, AZN’s stock price has delivered ~15.49% return as compared to negative ~20.19% of FTSE-100 index and positive ~1.85% return of FTSE All Share Pharmaceuticals & Biotechnology, which shows that the stock has outperformed the benchmark index and the sector during the last year.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

During H1 FY20, AZN witnessed an increase in financial performance despite an unprecedented situation as prevailing currently due to Covid-19 mayhem. It witnessed an increase in the revenue across the portfolio of therapies and products in all locations. AZN’s new medicine performed well and delivered a growth of 42%, with a strong pipeline and regulatory approvals from authorities. Capital expenditure is projected to be roughly stable and restructuring expenses will decrease against the previous year. The Company is also monitoring the developments carefully and will provide appropriate updates. The full-year guidance is supported by exciting new medicines pipeline and focused commercial execution.

The Company affirmed that the recent issuance of bonds would not affect the financial guidance for FY20. In FY20, total revenue is projected to surge by a high single-digit to a low double-digit percentage, while EPS should increase by a mid- to high-teens percentage. Meanwhile, the Company is focusing on improving operational leverage while the capital expenditure will remain broadly stable as compared to the previous year. The guidance and operational growth are underpinned by the exciting pipeline of new medicines, and the focus is on commercial execution.

  (Source: Presentation, Company Website) 

Considering the strong performance in H1 FY20, robust balance sheet, strong cash returns, and support from the valuation as done using the above method, we have given a “Buy” recommendation on AstraZeneca at the current price of GBX 7,793.00 (as on 22 October 2020, before the market close at 8:21 AM GMT+1), with lower-double digit upside potential based on 29.10x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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