Vaccine aids AstraZeneca as pandemic drags on wider results

Covid-19 has been a double-edged sword for the stock, hitting traditional drug sales.

AstraZeneca (LSE:AZN)’s status as a global brand has been enhanced by its Covid-19 vaccine. Despite some concerns on efficacy from some quarters, an endorsement from the World Health Organization has allayed those fears.

But for the company, aside from the pandemic, the core business continues to grow. Indeed, any revenues or profit impacts relating to the Covid-19 vaccine are not included in the company’s 2020 figures, out today, with the intention of starting to report these in the first quarter of the new financial year.

Nor can any numbers be included from the proposed $39 billion (£28.2 billion) acquisition of pharmaceutical firm Alexion (NASDAQ:ALXN), which is expected to complete in the third quarter of this year.

While the price being paid has raised some eyebrows, the intentions are clear. The area of the treatment of rare diseases comes with high prices (usually borne by insurers) and high margins, thus boosting revenues, while also providing some cost benefits.

In terms of business as usual, overall pre-tax profit rose from $1.6 billion to $3.9 billion in the year, underpinned by strong revenue growth in key areas.

• Syncona: investor interest is exploding in this area of science
• ii view: AstraZeneca vaccine approved for use in UK
• Are you saving enough for retirement? Our calculator can help you find out

The oncology unit, which accounts for 43% of total revenues, saw growth of 23%.

New medicines are responsible for over half of revenues and emerging market sales jumped by 53%.

Its drug aimed at combating heart failure was, for example, very recently approved in the major potential market of China. In addition, with reported gross profit margins of 80%, an extremely busy pipeline, and additional investment in research & development (R&D) to the tune of $5.9 billion, the immediate outlook is promising. Meanwhile, the dividend has been maintained, even if the current yield of 3% is not especially punchy.

Less positively, the effects of the pandemic have had other effects on the company’s more traditional drug sales. Fewer hospital visits and important surgical procedures have impacted sales for some of its drugs which are usually used. More broadly, any R&D spend comes with the inevitable risk of some failure, let alone approval by the relevant drug regulators.

More recently, investors have chosen to focus on a debt pile which has been growing through acquisition rather than the potential for future profits, with the result that the share price has seen a decline over the last year of 6%, which compares to a drop of 13% for the wider FTSE 100.

Over the last five years, however, the share price growth of 81% gives an alternative view of the progress the company has made. With prospects for the company in clear evidence from these results, the market consensus of the shares as a strong ‘buy’ is likely to remain intact.