ii view: AstraZeneca raises outlook but China probe a concern

Nine-month results to 30 September

• Currency adjusted revenue up 19% to $39.18 billion
• Currency adjusted core Earnings Per Share (EPS) up 11% to $6.12

Guidance:

• Now expects total 2024 revenues to increase by a high teens percentage, up from a previous mid-teens percentage
• Now expects core 2024 EPS to increase by a high-teens percentage, up from a previous mid-teens percentage

Chief executive Pascal Soriot said:

"Our company has continued on its strong growth trajectory in the first nine months of 2024. In the year to date we have announced the results for multiple positive high-value trials and are working to bring these new options to patients as quickly as possible. 

“We are highly encouraged by the broad-based underlying momentum we are seeing across our company in 2024, and growth looks set to continue through 2025, providing a solid foundation to deliver on our 2030 ambition.

“Finally, we take the matters in China very seriously. If requested, we will fully cooperate with the authorities. We remain committed to delivering innovative life-changing medicines to patients in China."

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ii round-up:

In a series of announcements, drugs maker AstraZeneca (LSE:AZN) today raised its estimates for full year sales and earnings but withdraw a potential medicine under trials to treat lung cancer. 

Currency adjusted revenues for the nine months to 30 September rose 19% year-over-year, led by a 22% increase in cancer treatment sales. Astra, which also announced a $3.5 billion investment in expanding US R&D and manufacturing facilities, now expects full-year 2024 earnings per share to increase by a high-teens percentage year-over-year, up from a previous mid-teens estimate. 

Shares in the FTSE 100 mammoth retreated 1.5% in UK trading having come into this latest news down 16% over the last month. That follows investigations in China into former and current employees over allegations of medical insurance fraud, illegal drug importation and personal information breaches. Astra itself is not currently under investigation but is offering full cooperation. 

China related sales climbed 15% to $1.67 billion during the third quarter to 30 September. US sales rose 23% to $6 billion, with European sales improving 22% to $2.88 billion. Overall Q3 revenues rose 21% on a currency adjusted basis to $13.56 billion.

Astra now expects total 2024 revenues to rise by a high teen’s percentage, up from a previous mid-teens percentage estimate. Currency adjusted revenues for Cardiovascular, Renal and Metabolism (CVRM) related medicines during Q3 climbed 20% to $3.16 billion with Respiratory & Immunology therapies expanding 29% to $1.96 billion. Cancer, or oncology sales totalled $5.57 billion.

The Cambridge headquartered AstraZeneca is likely to announce fourth-quarter and full-year results in early February. 

ii view:

Founded in 1999 through a merger, the Anglo-Swedish pharmaceutical and biotechnology company today operates in over 100 countries. Astra currently has over 195 investigational therapies in its pipeline, with 21 new molecular entities at late-stage or phase III development. In May, at an investor day, management flagged plans to grow revenues to $80 billion by 2030, up from $45.6 billion in 2023, driven by the potential launch of 20 new medicines. 

For investors, the recent detaining by Chinese authorities of Astra’s China President Leon Wang has significantly raised concerns, with potential for the company itself to now be investigated. Drug development is an expensive and risky business. Previous takeovers, such as the $1.05 billion purchase of rare endocrine disease specialist Amolyt Pharma, are not without risk, while GSK (LSE:GSK) shares currently sit on a forecast dividend yield of just over 4% compared with around 2.4% at Astra. 

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To the upside, cancer treatment sales remain buoyant, generating 41% of overall revenues in this latest quarter. Drug development remains ongoing with the group’s experience with diabetes offering insight into potential weight management medicines. Sales on a geographical basis are diverse, with sales to emerging markets and excluding China coming in at 13%, while takeovers such as the group’s 2021 purchase of rare disease focused Alexion have expanded the diversity of drug treatments.

For now, concerns regarding an escalation of events in China are likely to continue weighing near-term. That said, raised annual guidance and an ambitious sales growth target to 2030 offer focus on the longer-term, with this FTSE 100 giant arguably still worthy of consideration for a place in diversified investor portfolios. 

Positives: 

• Targeting a potential 20 new medicines by 2030
• Acquisitions adding to diversity of drug treatments

Negatives:

• Involved in various legal proceedings considered typical to its business, including litigation and government investigations
• Currency movements can hinder

The average rating of stock market analysts:

Buy