A decade after Pfizer, AstraZeneca needs to find its growth again
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
AstraZeneca chief executive Pascal Soriot would have been forgiven for waving a big “I told you so” sign. In February, the UK pharmaceuticals company hit a long-term sales target that once seemed out of reach.
Soriot set the goal to reach $45bn in sales by 2023 a decade ago, as part of its campaign to see off a £69.4bn hostile pursuit from US rival Pfizer. Back then AstraZeneca’s revenues were $26bn. It faced patent expiries on several former blockbuster medicines; its pipeline was weak.
Soriot could not resist a small celebration at full-year results, noting that the target was achieved “through ups and downs, and I have to say often a lot of scepticism”. But, 10 years this month after Pfizer arrived on the scene, the Frenchman has a fresh challenge: persuading investors that AstraZeneca’s best days are not behind it.
Its shares have gone nowhere in the past 12 months. That is partly thanks to the hype around weight loss drugs. Although AstraZeneca is in the race for a treatment, it is far behind the sector’s leaders Eli Lilly and Novo Nordisk. But investors are also questioning if AstraZeneca can maintain the momentum for which it fought hard over the past decade.
AstraZeneca’s transformation is the sort of turnaround that others in the sector, such as Germany’s Bayer, need to replicate. Soriot took a very broad portfolio and focused on some of the newest areas of science, including oncology, rare diseases, cardiovascular, renal and metabolism (CVRM) and respiratory and immunology (R&I).
He sold off assets in non-core areas to invest heavily in research and development, plus fund acquisitions. There were setbacks, including criticism over its accounting practices. But the strategy paid off with five years of earnings growth from 2018. Today, AstraZeneca has 13 blockbusters, led by diabetes treatment Farxiga and oncology drug Tagrisso. Patents on the former will start to expire in the next few years.
AstraZeneca is starting its next 10-year cycle from a very different place. It has 178 prospects at various stages of development; it has been striking a series of deals, including last month’s $2.4bn agreement to buy Canadian biotech Fusion Pharmaceuticals aimed at bolstering its efforts to develop more targeted cancer treatments to replace traditional chemotherapy and radiotherapy.
For several years a sector darling that commanded a premium over European peers, AstraZeneca’s shares now trade on a forward price/earnings ratio of 16 times, close to the sector average. Soriot has more convincing to do as he prepares for an investor day in May.
Another long-term revenue target might help crystallise what he thinks AstraZeneca is capable of.
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