AstraZeneca Plc – Strong Progress Across the Portfolio of Products and Therapies in all Locations

AstraZeneca Plc (LON: AZN) is a FTSE 100 listed science-led Biopharmaceutical Company, which focuses on the development, commercialisation, and discovery of prescription medicines. On 30 July 2020, the Group will release the H1 FY20 results.

On Monday, AZN stock was trending as market participants were eagerly awaiting the results of the recent experiment drug trial which was jointly conducted by AstraZeneca and Oxford University to fight against the virus.

Recent News

On 9 July 2020, the Company announced that the US Food and Drug Administration (FDA) had granted Priority Review for Brilinta (ticagrelor) for the decrease of subsequent stroke in patients. Also, the Group had accepted a supplemental New Drug Application (sNDA).

On 8 July 2020, the Group stated that Lynparza had been approved in the EU to treat patients with BRCA-mutated metastatic pancreatic cancer. AstraZenca is developing Lynparza with US drug maker Merck & Co Inc. For the treatment of neurofibromatosis type 1 (a rare and debilitating genetic disease), the Group said on 30 Jun 2020 that the selumetinib had been granted orphan drug designation in Japan.

Q1 FY2020 Trading Update (as on 29 April 2020)


(Source: Company Website)

The Company’s total revenue for the first quarter of 2020 increased by 16% (up 17% on a constant exchange rate basis) to US$6,354 million, led by a surge in the product sales and augmented revenue from all therapy across regions. Moreover, the Group’s core gross profit margin and reported gross profit margin reduced by 2 percentage points to 78% and 77%, respectively. The Group’s core earnings per share stood at US$1.05 for the period, reflecting an increase of 17% on an actual basis. Whilst reported earnings per share surged by 27% on the actual basis to US$0.59.

Share Price Performance


1-Year Chart as on 17 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

AstraZeneca Plc’s shares closed at GBX 9,187.00 on 17 July 2020, up by 3.88% against the last day closing price. Stock 52 week High and Low were GBX 9,335.00 and GBX 5,871.00, respectively.

From the technical standpoint, the shares were trading well above the short-term support level of 50-day simple moving average prices, which reflects an upward trend in the stock and carrying the potential to move up further.

Key Risks

The Company faces significant pressure from regulatory changes with the threat of price controls increasing across all the markets. A global economic slowdown may further accentuate pressure from governments and regulators on prices, leading to a decline in some markets, which may result in a reduction of revenue, profits and cash flow.

Conclusion

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. The Group is also focussing on understanding the disease better and developing innovative medicines and redefining clinical trials. Despite unprecedented times caused by the COVID-19, the Group witnessed an increase in financial performance in Q1 FY20, with an increase in the revenue across the portfolio of products and therapies in all locations.

Over the course of 3 years (FY16 - FY19), the Company’s revenue surged from US$23,002 million in FY16 to US$24,384 million in FY19. Compounded annual growth rate (CAGR) stood at 1.96%.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing market price of GBX 9,187.00 (as on 17 July 2020) and will recommend fresh buying at the right time.

Hikma Pharmaceuticals Plc – Decent Performance in the Challenging Environment

FTSE 100-listed Hikma Pharmaceuticals Plc (LON: HIK) is the United Kingdom-based Pharmaceuticals and Biotechnology Company, specializes in the business of developing, manufacturing, and marketing of a portfolio of branded and non-branded generic medicines.

On 7 August 2020, the Group will announce the interim results for the six months ended 30 June 2020.

Recent News

On 25 June 2020, the Group announced that Dr. Jochen Gann had resigned his directorship, with immediate effect.

Trading Update for FY20 (as on 30 April 2020)

The Group is well-positioned in the current pandemic with product offerings majorly used in the healthcare sector. The Generics division did well from the contribution of new products and additional demand given the COVID-19 situation. The Group has shown an increase in demand for the Injectables in the US, Europe, and MENA region as it provides products, such as anaesthetics, sedatives and anti-infectives, which are facing huge demand. Also, the Group witnessed a strong balance sheet, with robust cash generation and low leverage. Total dividend for FY19 was 44 cents per share, an increase of 16% against the previous year (2018).

Share Price Performance


1-Year Chart as on 17 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Hikma Pharmaceuticals Plc’s shares closed at GBX 2,258.00 on 17 July 2020, up by 2.82% against the last day closing price. Stock 52 week High and Low were GBX 2,670.00 and GBX 1,596.00, respectively.

From the technical standpoint, shares were trading well below the short-term support level of 50-day simple moving average prices, which reflects a downtrend trend in the stock.

Valuation Methodology



Key Risks

Being a Pharmaceuticals Company, Hikma Pharmaceuticals Plc needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the Company’s financial performance. The global macroeconomic, political, and regulatory risks could further affect the business performance of Hikma.

Conclusion

In the Injectables and Branded business, the Group expects the revenue for FY20 to grow by mid-single-digit. The Injectables operating margin is projected to be between 35% and 37%. In the Generics business, the Company expects revenue to be in the range of US$700-US$750 million, which includes income from the launch of Advair Diskus® generic in H2 FY20. The operating profit is expected to be in the range of 16%-18% in FY20. Moreover, the demand for healthcare products will likely increase amid the current situation.

However, the Company’s operations are impacted negatively due to uncertainties created by the Brexit or COVID-19. Currently, the stock is trading near the 52-week high, suggesting that the upside potential might be limited, and the Company can face stiff resistance at the current level.

Based on the above rationale, we have given a “Watch” recommendation at the closing market price of GBX 2,258 (as on 17 July 2020), while we look for the growth catalysts in the near-term.
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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