Astra Shares Worth £35

Despite rejecting Pfizer's takeover bid and a declining competitive advantage, analysts have upped AstraZeneca's valuation thanks to key product developments

Damien Conover, CFA 4 June, 2014 | 10:09AM
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AstraZeneca (AZN) has built its leading presence in the pharmaceutical and biotech industry on patent-protected drugs and a developing pipeline that add up to a wide moat. However, the massive patent losses on gastrointestinal drug Nexium and cholesterol reducer Crestor in 2014 and 2016, respectively, will weigh on the company's growth prospects.

Although AstraZeneca's pipeline ranks toward the bottom of its peer group, we think the company is developing several key products that hold blockbuster potential. In particular, Forxiga holds a first-mover advantage as a new type of diabetes therapy in Europe. Also, the company's recently approved cardiovascular drug, Brilinta, could develop into a multibillion-dollar product if doctors get comfortable using the drug with low-dose aspirin. Further, the company is developing several late-stage cancer compounds where approval requirements tend to be lower and pricing power remains strong.

In addition to internal development, AstraZeneca has aggressively pursued acquisitions, with mixed results. The $15.6 billion price paid for MedImmune in 2007 appears to have been too high. Several of MedImmune's early-stage products need to achieve blockbuster status to warrant the acquisition price. Although the company creates growth opportunities through acquisitions, its chequered record leaves us less confident in management's adherence to price discipline. However, the recent partnership with Amgen to develop immunology drugs and the acquisition of full rights to several diabetes drugs from Bristol look like steps in the right direction as far as a solid external development strategy.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
AstraZeneca PLC8,994.00 GBX-0.10Rating

About Author

Damien Conover, CFA  is an equity analyst and associate director at Morningstar.