Can AstraZeneca plc Make £5 Billion Profit?

Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to push profits up to levels not seen in the last few years.

Today I’m looking at AstraZeneca (LSE: AZN) (NYSE: AZN.US) to ascertain if it can make £5bn in profit.

Have we been here before?

A great place to start assessing whether or not AstraZeneca can make £5bn in profit is to look at the company’s historic performance. It would appear that AstraZeneca has actually been able to make a profit of more than £5bn in the past. Indeed, the company reported a profit of approximately £6bn for its 2011 financial year — a record for AstraZeneca.

AstraZeneca’s record profitability was attributable to rising sales of the company’s well-known cholesterol fighting tablet, Crestor, now considered one of the worlds most successful drugs. During 2011 sales of Crestor jumped 13% to $6.6bn, becoming the company’s most lucrative treatment.  A number of the company’s other treatments also reported annual double-digit sales growth during the period, helping to boost AstraZeneca’s performance. 

However, since 2011 AstraZeneca has lost the exclusive manufacturing rights to a number of its key treatments, including Crestor. As a result, sales and profits have both collapsed. 

But what about the future?

As I have already mentioned, AstraZeneca’s profits have been falling over the past few years as the company has lost exclusive manufacturing rights to a number of its treatments. Unfortunately, sliding sales are going to weigh on AstraZeneca for some time; until the company can get new treatments to market.

That being said, City analysts and AstraZeneca’s management remain upbeat on the future. In particular, City forecasts currently predict that AstraZeneca will be able to put the brakes on sliding profits and sales within the next two to three years. What’s more, AstraZeneca’s management believes that the company can return to growth sooner than current City predictions, as the company has more than doubled its pipeline of late stage treatments during the past year.  As these treatments come to market they should compensate for falling legacy drug sales.

Nevertheless, AstraZeneca reported a net income of only £1.6bn for the company’s 2013 financial year, which is a decline of around 70% from the record profit figure reported back during 2011. With this being the case, it would appears as if AstraZeneca has a lot of work to do before it can hit my profitability target.

Still, in the long-term I would not rule out AstraZeneca’s ability to generate £5bn in profit but in the short-term, I feel that this profit target is not realistic. 

Foolish summary

So overall, I feel that AstraZeneca cannot make £5bn profit.