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AstraZeneca reaps oncology rewards

The ongoing controversy surrounding the AstraZeneca/Oxford Covid-19 vaccine obscures the company’s real success
AstraZeneca reaps oncology rewards
  • Covid vaccine is irrelevant to AstraZeneca's business
  • Oncology specialisation makes it a real Euro pharma player

It was a year of highs and lows for AstraZeneca (AZN) which is still with the controversy surrounding the Oxford Covid-19 vaccine as the debate over the impact of the jab and political reactions to it during the pandemic rumbles on. However, investors should not forget that vaccines are not, and were never, a material part of AstraZeneca’s business and that its real value is as an innovative developer of high value oncology medicines in hard-to-treat cancers.

In this respect, the company has exceeded all expectations and with 2021 dominated by positive trial readouts for key products trastuzumab deruxetan (Enhertu) in breast cancer and olaparib (Lynparza) in prostate cancer, the high risk/reward strategy that chief executive Pascal Soriot initiated when he took the helm in mid-2009 looks validated. It is measure of how far and quickly the oncology programme has developed that if you look up how Lynparza was viewed by Astra’s previous management, it was listed prominently as a discontinued programme for breast cancer. More than a decade on and the medicine generated $2.3bn (£1.69bn) in annual sales in these results, a 32 per cent increase on 2020.

With the market still waiting on further data from Astra’s DESTINY-Breast04 trial for Enhertu, developed in partnership with Japanese company Daiichi Sankyo, the full-year results had to be merely in line with everyone’s expectations for the market to be satisfied and Astra did not disappoint. Apart from the trial results, the biggest corporate move of the year was the company’s purchase in July of US biotech Alexion for $41bn, funded by a combination of Astra shares and $8bn in new long-term debt. One-time restructuring costs as a result of the Alexion integration stood at $2.1bn.

The impact on the balance sheet overall was surprisingly benign, apart from the $8bn increase in goodwill and a doubling of intangible assets post-the acquisition. AstraZeneca seems to have managed to maintain shareholder equity while spending the vast stock of retained earnings that had built up under previous chief executive David Brennan. For example, in 2010, these topped $18bn, but fell to barely $1.7bn in these results.

Despite its generally irritating use of “core” and “non-core” earnings, AstraZeneca is clearly the pharma company of the moment, which is reflected in a forward price/earnings ratio of 17 times UBS’s EPS estimates for 2022. That places Astra at the top table of European pharma valuations, but based on its operational performance, that rating looks eminently justified. Buy.

Last IC View: Buy, 9,076p, 12 Nov 2021

ASTRAZENECA (AZN)   
ORD PRICE:8,628pMARKET VALUE:£134bn
TOUCH:8,627-8,631p12-MONTH HIGH:9,523pLOW: 6,499p
DIVIDEND YIELD:2.4%PE RATIO:na
NET ASSET VALUE:2,533p*NET DEBT:62%
Year to 31 DecTurnover ($bn)Pre-tax profit ($bn)Earnings per share (ȼ)Dividend per share (p)
201722.53.55277203
201822.11.99170215
201924.41.55103218
202026.63.91244207
202137.4-0.268.00210
% change+41--97+1
Ex-div:24 Feb   
Payment:28 Mar   
*Includes intangible assets of $62bn, or 4,025p a share