AstraZeneca's R&D pipeline outweighs Covid woes

Covid-19 has cast a rather long shadow over AstraZeneca (AZN). The pharma giant’s total revenue in the fourth quarter of last year fell by 7 per cent to just over $11bn as sales of its Vaxzevria jab fell.

Management now expects revenue from the company’s suite of Covid-19 medicines – which includes preventative treatment Evusheld and a development-stage antibody – to “decline significantly” in the coming year. This should not, however, push the operation even slightly off course. 

AstraZeneca expects total revenue for the coming financial year to increase by a “low-to-mid” single-digit percentage. Excluding its Covid treatments, the company said revenue would grow by a low-double-digit percentage. 

Management also forecast a return to full-year growth in China, one of its most important markets, following a second consecutive quarter of sales expansion. Rising demand from patients in the country is currently managing to offset the effect of the government’s national drug reimbursement programme. 

Analysts at Shore Capital said AstraZeneca’s “industry-leading” R&D pipeline will boost margins in the longer term. “Data readouts across the breadth of the pipeline, particularly in 2023, could drive further multiple expansion or upgrades,” they wrote in a note.

Results from a key phase 3 trial of lung cancer drug datopotamab deruxtecan are expected in the first half of this year, while further trial data on breast cancer drug Enhertu will be made public in the second half. All told, the company received 34 regulatory approvals for its drugs in major markets last year.

“We plan to initiate more than 30 phase 3 trials this year, of which 10 have the potential to deliver peak year sales over $1bn,” said chief executive Pascal Soriot in a statement. Soriot also predicted that AstraZeneca would bring some 15 new medicines to market before the end of the decade.

The shares currently trade in line with big pharma rivals at around 14.5 times forward earnings for the 2024 financial year. We think the strength of its R&D programme, and its ability to bounce back following the loss of Covid revenues, justify any future pricing premium for AstraZeneca. Buy.