ii view: AstraZeneca expects Covid vaccine data by year-end

Newly developed drugs now account for more than half of overall sales.

Third-quarter results to 30 September

• Revenue up 3% to $6.58 billion
• Core or adjusted earnings per share (EPS) down 4% to $0.94

Guidance:

• Financial guidance for FY 2020 is unchanged
• Revenue is expected to increase by a high single-digit to a low double-digit percentage
• Core EPS is expected to increase by a mid-to high-teens percentage

Chief executive Pascal Soriot said:

"We made encouraging headway in the quarter, despite the ongoing disruption from the Covid-19 pandemic. Highlights of the sales performance included further success in Oncology and an acceleration in the progress of Farxiga. Our pipeline also excelled, with Farxiga expanding its potential beyond diabetes and heart failure with ground-breaking new data in chronic kidney disease, while regulatory submission acceptance was achieved for anifrolumab in lupus.”

ii round-up:

Drug maker AstraZeneca (LSE:AZN) reported mixed quarterly results, with earnings marginally below City estimates due to higher taxes but sales matching forecasts.

However, management’s full-year earnings estimates were left unchanged, while it flagged its hopes for data in relation to its potential Covid-19 vaccine to be available by year-end. 

Astra shares were little changed in UK trading having gained by around 12% year-to-date. Shares for UK rival GlaxoSmithKline (LSE:GSK) are down by a fifth in 2020, while shares of non-patented drug maker and supplier Hikma Pharmaceuticals (LSE:HIK) are up by over a third. 

Sales of Astra’s biggest product category - cancer, or oncology drugs - rose by 13% year-over-year to $2.86 billion. Sales of Cardiovascular, Renal and Metabolism (CVRM) arena compounds improved by 6% to just under $1.2 billion. 

On a geographical basis, a better than expected US sales gain of 11% helped counter a marginally disappointing quarterly performance for its important emerging markets region. Sales in emerging markets excluding China fell by 7%. 

Astra is continuing to work with Oxford University to try and develop a Covid-19 vaccine. Recent quarterly sales at the Cambridge headquartered company have been buoyed by hospital moves to top up their store cupboards in order to fight other conditions which can aid coronavirus.  

Less favourably, Covid is raising some challenges including lower levels of patient screenings, diagnoses, testing and elective procedures; and less face-to-face engagement with healthcare practitioners for commercial field-sales teams. 

Full-year and fourth-quarter results are scheduled for 11 February.

ii view:

AstraZeneca is a global, science-led biopharmaceutical company. It is focused on the discovery, development and commercialisation of prescription medicines. It remains on track for a third consecutive year of sales growth. Recent compound development success now sees new medicine sales accounting for 52% of overall revenues year-to-date, up from 42% in 2019. 

Its efforts to make a Covid-19 vaccine compete with other collaborations such as Pfizer (NYSE:PFE) and BioNTech, GSK and Sanofi (EURONEXT:SAN) and many others. Astra success would bring glory for its long-serving CEO Pascal Soriot, architect of a clear turnaround in new drug success. 

For investors, excitement created by developed new medicines and growing cancer drug sales has fuelled a re-rating of the shares. They now trade on a forward price/earnings (PE) ratio of over 25 compared to a 10-year average of less than 15 and a forward PE of below 15 at rival GlaxoSmithKline. As such, the dividend yield is now more reflective of growth, although arguably still attractive at around 2.5% on a historical basis. In all, recent results and ongoing developments appear to justify the heightened valuation. 

Positives: 

• Oncology product sales account for over 40% of sales
• Attractive dividend

Negatives:

• Respiratory & immunology sales retreated by 12%
• Other medicine sales including those where patents have expired fell by 5%

The average rating of stock market analysts:

Buy