AstraZeneca looks to rare disease market to propel growth

Pharmaceutical giant AstraZeneca (AZN) has acknowledged that sales of its Covid-19 medicines will dwindle to almost nothing across the course of the current financial year. This comes after revenue from the products declined by more than $2bn in the first half. Despite this, the group’s total revenue increased 4 per cent at constant exchange rates – and would have grown by 16 per cent if coronavirus was removed from the equation.

The company’s core product sales gross margin – which excludes the impact of its collaborations with other drugmakers – reached 83 per cent in the six months to the end of June. The improvement of three percentage points reflects the decline in sales of lower margin Covid-19 products, as well as AstraZeneca’s growing emphasis on higher-margin specialty drugs.

AstraZeneca made a further decisive move into the rare disease market today, when it announced plans to purchase and licence the assets of Pfizer’s (US:PFE) early-stage gene therapy portfolio. The total cost of the acquisition could be as much as $1bn, plus tiered royalties on the sales of any drugs that make it to market.

Marc Dunoyer, the head of Alexion, the company’s rare diseases business, said the purchase “represents another major step forward in […] AstraZeneca's ambition to be an industry leader in genomic medicine”. The company is, of course, already among a handful of global leaders in the field of oncology. Its targeted therapy Tagrisso, a treatment for non-small cell lung cancer, generated sales of almost $3bn in the first half, making it the group’s highest selling product.

A total of eight AstraZeneca drugs brought in $1bn or more across the first half – and investors will be pleased to know it’s safeguarding future profits by developing new drugs.

“Our pipeline momentum continues with eight positive pivotal trials for our oncology medicines so far this year, and we are encouraged by the positive data from Tropion-Lung01, the first pivotal trial of [lung cancer drug] datopotamab deruxtecan,” said chief executive Pascal Soriot. 

However, investors have concerns about the Tropion study, and the clinical efficacy of the drug, following a disappointing data readout earlier this month. Shares fell 6 per cent in response, though they have since recovered. “The recent movement in the share fundamentally looks overdone, and we see this robust set of results as a good opportunity for people to revisit AZN’s premium growth story,” wrote analysts at Shore Capital.

AstraZeneca currently trades on a forward price-to-earnings multiple of 19.5x for the full financial year, which is hardly a bargain. But we’d argue that it’s a fair price for a quality company. Buy.

Last IC view: Buy, 11,240p, 9 February 2023