Now we are going to talk about a biopharmaceutical company. You can buy its shares and forget about them for a long time. AstraZeneca not only shows good financial results but also has prospects for the future. Over the past five years, the shares of the issuer have shown good growth, rising 109% during that time, slightly ahead of the SP500, which rose 103%.
The most important development for the companies in 2021 was the acquisition of Alexion Pharmaceuticals, a biotechnology company that develops treatments for rare diseases. The deal was closed in July 2021, and the purchase cost $39 billion. This acquisition helped AstraZeneca expand its portfolio of drugs and achieve better financial results.
In Q3 2021, AstraZeneca reported total revenue of $9.9 billion, up 50% from Q2. However, it is not quite correct to compare the two quarters, as there was no purchase in Q2 that improved financial performance.
Some key business areas of AstraZeneca, such as Alexion, which existed before the deal, also showed good dynamics in Q3. For example, sales of oncology drugs jumped 18% year on year to $3.4 billion.
The division, which develops and manufactures cardiovascular, renal, and metabolic drugs, increased its sales 16% year over year to $2.1 billion.
The pharmaceutical manufacturer’s vaccine against coronavirus also contributed significantly to the financial results. For example, sales for the earnings period reached $1.1 billion.
But there were negative figures in the report. After the Alexion acquisition, AstraZeneca’s net income deteriorated. The company reported a net loss of $1.7 billion, while a year ago, it had a net profit of $651 million for the same quarter. Should investors be worried? We don’t think so because the problem is temporary, and the company has everything to ensure revenue growth and return to profitability.
High-level credit rating
Another hallmark of AstraZeneca is its balance sheet, which allows the issuer to arrange mergers and acquisitions to strengthen its existing portfolio and further diversify its revenues.
For example, the company’s net debt to EBITDA ratio for the last 12 months was 3.1, which is not too bad considering the recent acquisition.
Although, if you consider Alexion Pharmaceuticals’ non-cash inventory cost adjustments, AstraZeneca’s net debt to EBITDA ratio is even better at 2.7.
AstraZeneca’s net debt does not exceed $24.7 billion. Given the company’s size and its reach, this debt looks acceptable. Therefore, AstraZeneca has an A- rating from S&P Global.
AstraZeneca has become known to the general public for developing the coronavirus vaccine, but it is not the most important or most promising product. The coronavirus pandemic will end sooner or later, and products other than the vaccine will determine its future.
The company’s best-selling drugs remain the cancer drugs Tagrisso, Imfinzi, and Lynparza; the diabetes drug Farxiga; and the asthma drug Symbicort. And AstraZeneca continues to ramp up sales. For example, revenues from Tagrisso grew 8% year over year to $1.2 billion in Q3, and sales from Farxiga jumped 51% year over year to $797 million. And that’s not to mention record sales of the COVID-19 vaccine.
Moreover, the company has several other drugs in development. AstraZeneca now has more than two dozen drugs in phase III trials.
The Food and Drug Administration recently approved Tezspire, an asthma medication.
AstraZeneca developed Tezspire together with Amgen, and now the partners will share equally in the costs and profits associated with this drug. This drug could become a blockbuster and an additional growth driver for the paper.
Alexion can also add new drugs to the portfolio. Its management plans to launch ten medications by 2023.
The forward price to earnings ratio (P/E) is currently 16.1, which is a bit high, although not exorbitant when compared to the P/E ratio for the pharmaceutical industry, which is 13.5.
The pharmaceutical company has a dividend yield of 2.39%, higher than the S&P 500 with 1.30%. Overall, the stock looks attractive enough for investors looking for income and growth at more than reasonable valuations. The shares are now back from the highs of $8520 and are at $8520.
Historically, Pfizer stock has never shown much growth in returns. Over the past ten years, the S&P500 index has risen much faster than the stock of this pharmaceutical company. That all changed with the arrival of the coronavirus, and Pfizer stock rallied.
In 2021, this paper managed to grow 60%, while the S&P500 rose only 27%. It’s no secret that the growth momentum came from the coronavirus vaccine. But will the company remain as popular when the coronavirus is gone? Should you invest in a drug maker in 2022? We answer that question below.
Coronavirus and business
Let’s start with something profitable for the company lately, namely the COVID-19 vaccine. This company is the principal supplier of vaccines in the world. Almost 120 million people in the United States alone have been vaccinated using it. Nevertheless, the primary income from the vaccine, namely 75%, came to the company from sales abroad. In second place is the European Union, where the issuer supplied vaccines worth $650 million. By 2023, the company will deliver another 8 billion doses to the region.
For 2021, Pfizer expects revenues from vaccine sales to be $36 billion, and that number could be higher in 2022 as demand for the vaccines should continue. The company is betting on booster doses, plus, the company is waiting for regulatory approval for vaccines for children under 6.
In addition to the vaccine, the pharmaceutical company released Paxlovid, a pill designed to treat the coronavirus in its early stages.
The U.S. government has already contracted the company for $5.3 billion for 10 million courses of Paxlovid. And then, there is the global market, where the company can triple its revenue from this drug. Eventually, Paxlovid should become the key drug in the fight against COVID-19 and surpass the vaccine in revenue.
Not just a vaccine
Pfizer’s competitor Moderna has many drivers for growth in the long term. Its portfolio includes 15 clinical programs not related to the COVID-19 vaccine. And they will contribute to the growth of this biotechnology company in the coming years.
Meanwhile, Pfizer has several times more such programs, 94 to be exact. Twenty-nine of them are in the third stage of research. Nine are already being registered. It means that shortly, another series of drugs from this company may hit the market.
The arrival of new drugs should ensure Pfizer’s profits for the next decade and replace drugs with patents that will expire in the coming years. For example, the blood-thinning drug Eliquis, for which the company will lose its patent in 2028.
In addition to medical programs, Pfizer continues to grow its business. In December 2021, the drugmaker announced that it plans to acquire Arena Pharmaceuticals. This company is known for research in immune-mediated and inflammatory diseases.
Pfizer is also continuing its collaboration with BioNTech, with whom it is developing a vaccine for shingles. Clinical trials are due to begin in late 2022.
Above, we described the long-term catalysts for growth, but the company also has short-term drivers that are making the company’s budget now. We’re talking about more than 20 products, generating double-digit percentage increases in sales.
In Q3, sales of the anticoagulant Eliquis rose 21% to $1.3 billion. At the same time, sales of Xtandi, a cancer drug, showed a 16% increase to $309 million, up 16% from 2020.
The immunosuppressant Xeljanz remains a weak link in the Pfizer product line. Its use has shown an increased risk of serious cardiovascular disease and cancer in patients who received it. It caused a 7% year-over-year decline in revenue for this drug, to $610 million. Despite this problem, Pfizer believes that Xeljanz could show growth in 2022 as the market adjusts to this information.
The company’s pretax profit margin has grown over the past year as vaccine sales increased. Free cash flow has also grown significantly, reaching $29 billion over 12 months. For comparison, in 2020, this figure was equal to $11,6 billion. With the growth of free cash flow, the company has more money to invest in new research and pay dividends.
The company has a price to sales ratio of 4.2 and a price to earnings ratio of 15.3. Pfizer shares rose by more than 50% in 2021. It is a significant success for the company, whose market capitalization exceeds $320 billion.
In 2021, the company raised its bar pretty high, but we think it will easily beat it in 2022. The company’s coronavirus business is still running at full capacity. Even if demand for vaccines starts to decline by the end of the year, the pharma giant has other pharmaceutical projects that will bring it solid profits.
The company is attractive not only for its rapid growth but also for its dividends. Pfizer raised its dividend payout by 2.3% at the end of 2021. It now stands at $0.40 per share, a yield of 2.6%. By comparison, the S&P 500 has a yield of 1.3%.
To date, the paper has stabilized at around $53. If buyers hold on to that level, the chances of renewed growth will increase. The nearest target for them is $58. Next, their target will be $62, and after that, the area of $73.