AstraZeneca recovery continues after results boost

Success in performance, delivery and the pipeline have each contributed to another year of progress for a pharmaceutical giant which is keeping its foot to the floor. 

Revenues at AstraZeneca (LSE:AZN) were higher across the board in 2024, with notable successes in an Oncology business which accounts for 43% of overall sales, with an increase of 24%. There were also significant contributions from two other largest lines, the Cardiovascular unit (21% of group sales, revenue growth of 20%), and Respiratory & Immunology (14% and 25% respectively). These propelled a full-year revenue increase of 21% to $54.1 billion and included a final quarter where sales increased by 25% to $14.9 billion, ahead of the $14.2 billion which had been expected.

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At the same time, and despite an increase from $22.5 billion to $24.6 billion in net debt as the group continues its intense Research & Development programme, cash generation allowed an increase to the dividend, which remains on a relatively pedestrian 2.2% projected yield.

Product sales gross margin reflects the profitability of its successes at 80%, with operating margin of 14% sustaining growth. As a proportion of overall sales, the R&D spend equates to 24%, and in the coming year Astra projects an increase of 50% in general capital expenditure, given additional focus on manufacturing expansion and IT investment.

In the meantime, pre-tax profit for the year of $8.69 billion was 38% higher than the corresponding period and, in terms of outlook, the group remains upbeat, with estimates for the coming year including a high single-digit increase to total revenues en route to its target of $80 billion of revenues by 2030. Its more immediate optimism follows a year which saw nine positive Phase III studies (the late-stage development which is the final regulatory hurdle before the products get the full green light), with another seven to follow over the coming year.

Of course, the long-term potential of the sector is not in question, as moves towards personalised medicine and growing middle classes in emerging markets provide possibilities for endless demand. Meanwhile, the move away from the “white pills and Western markets” model , a phrase which Glaxo coined some years ago, is translating into more specialised businesses.

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For AstraZeneca, the US continues to generate its biggest slug of sales at 44%, followed by Europe at 26%, Emerging Markets at 12%, China at 9% and the Rest of the World the balance.  

Equally, the road to pharmaceutical success is long and arduous, and for the most part the major companies make incremental progress given the cost and timescales involved in discovering and developing new drugs. There can be other factors at play also, as evidenced by the fact that the shares have suffered of late, having fallen by 11% over the last six months. This decline was mainly due to reported government investigations in China which include allegations of medical insurance fraud, illegal drug importation and personal information breaches. The group has responded by offering its willingness to cooperate with the authorities while remaining committed to delivering medicines to Chinese patients, but the potential costs and length of time arising from such investigations have been a concern for investors.

However, despite this decline, and in sharp contrast to its rival GSK (LSE:GSK), the price remains ahead by 7% over the last year, as compared to a gain of 12% for the wider FTSE100. It is also up by 34% over the last three years and 45% over the last five, underlining the importance of a longer-term view on investments, particularly in this sector.

Astra remains the largest company in the FTSE100 with a market capitalisation of £173 billion and such size can often be accompanied by momentum. The group is well-regarded, due to the potential of its so-called “best-in-class” drugs pipeline, with multiple product launches and late-stage trial catalysts set to drive meaningful sales growth. Continued success will be just as hard given the ferocity of competition and the importance of the pharmaceutical industry, but the fact that AstraZeneca remains a major global player is testament to the CEO, his management team and the strategy thus far.

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The 2030 aim of $80 billion of revenues looks ambitious yet increasingly achievable, with Astra still confident of hitting the target given the strength of its late and mid-stage pipelines. Indeed, some may have seen the recent share price dip as an opportunity to buy on weakness given the group’s success hitherto, quite apart from the unquestionable prospects which the sector provides.

In any event, and also in contrast to GSK, the market consensus of the shares as a buy leaves Astra as the preferred play in the sector, given its prospects for the foreseeable future.