FTSE 350: Contrasting fortunes for the pharma giants in 2022

AstraZeneca is now benefiting from its decade-long investment in oncology products. This reflects the decision taken by chief executive Pascal Soriot to specialise Astra’s product offering, by spending retained earnings and increasing debt in order to acquire as many interesting early-stage cancer drug candidates as possible. With new products and indications coming on-stream in the intervening decade, the company’s return on research investment ratio is forecast to top 10 per cent this year, well above its notional cost of capital.

Although AstraZeneca had an excellent 2021 with clinical results for its oncology products, analysts are looking for further positive phase III data from Enhertu in metastatic breast cancer, developed in conjunction with Japanese company Otsuka; DS-1062 in multi-tumour cancers, for which it has partnered with Japan's Daiichi Sankyo; and Fasenra, a monoclonal antibody for controlling acute rhinosinusitis. Enhertu is regarded as having blockbuster sales potential, with estimates for 2024 sales ranging between $2.4bn (£1.8bn) and $4bn at the bullish end.

Glaxo’s strategic choices

The strategy outlined at GSK’s recent capital markets day was generally well-received by the market, probably on the premise that anything was better than the status quo. The splitting of the company into its respective pharmaceutical and consumer health businesses – which effectively reverses the merger between the old Glaxo Wellcome and SmithKline Beecham – should allow the management of both new entities to refocus their strategic goals and reverse the impression that the pharmaceuticals segment had become an afterthought for the old GSK. A conclusion proved, in part, by GSK’s embarrassing failure to produce a workable Covid-19 vaccine, despite its self-designation as a vaccines specialist.

Mending years of underinvestment in research and development will take time, but the ambitions are vaulting. Management targets a compound annual sales growth rate of 5 per cent between 2021 and 2026, with adjusted operating profits growing by 10 per cent annually. Achieving that will take resources, and one of the advantages of spinning out the consumer business yet retaining a large stake is that this business can then be mortgaged to pay for the rejuvenation of the higher-value pharmaceuticals unit.

GSK will look to further consolidate its vaccines business and expects more data this year from its vaccine candidate for respiratory syncytial virus (RSV), which is the trigger for bronchiolitis, although it had to halt trials in pregnant women to analyse safety data. This does not affect the ongoing ARseVi 006 trial for RSV in older adults, which is GSK’s main target group. The company is in an increasingly competitive battle to bring the first RSV product to market. As well as Moderna (US:MRNA) and Johnson & Johnson (US:JJ), US giant Pfizer (US:PFE) has joined the race with its $525mn acquisition of specialist biotech company Reviral, which has an RSV vaccine in advanced development. Whoever reaches the market first will quickly build dominance in first world vaccine programmes. It is a race that GSK needs to win to give credibility to its new strategy.