Today I am explaining why AstraZeneca (LSE: AZN) (NYSE: AZN.US) could deliver stunning shareholder returns.
Here are two numbers that I think help make the case.
13
AstraZeneca, like the rest of the pharmaceuticals space, has been fighting an intense rearguard action in recent years on the revenues front. This has been prompted by a steady increase in patent expirations across sales-critical drugs, such as its Crestor and Nexium labels, products which account for 35% of group revenues alone.
The business took a further hit this month when fellow drugs maker Breckenridge received approval for its Quetiapine Fumarate Tablets from the US Food and Drug Administration (FDA).
The drug is a generic version of AstraZeneca’s anti-psychotic treatment Seroquel, a label which has already suffered from intensifying competition in recent times. While sales of Seroquel XR in the States crept 1% higher during July-September, these plummeted 15% across the rest of the world due to the launch of generic rivals in Europe.
Still, AstraZeneca has doubled up on its R&D efforts in key growth areas to mitigate the loss of crucial drugs, and this week announced that it has 13 immuno-oncology combination trials running in its bid to become the industry leader in this field. And the business has an extra 16 trials in this area planned.
The company is also targeting diabetes and respiratory as critical revenue-driving sectors in coming years, as well as its Brilinta product for which it is currently developing an antidote that may give it the edge versus the competition.
In total AstraZeneca has 14 drugs across the business in Phase III testing, and is looking to make between 14 and 16 submissions in 2015 and 2016, and clock up between eight and 10 approvals.
After many years of lagging behind the competition in the development stakes, AstraZeneca is finally taking the necessary steps to bolster its sales outlook.
5.1 billion
Despite an enduring backcloth of revenues troubles, AstraZeneca remains a formidable cash generator and saw cash and equivalents register at an astronomical $5.1bn as of the end of September.
The business of drugs development is of course a capital-intensive process, in turn making a substantial cash buffer a standard requirement. But AstraZeneca’s plump cash pile also enables it to remain active on the acquisitions front to complement its organic pipeline and boost its position in hot growth areas.
Indeed, AstraZeneca announced at the start of November that it had acquired Germany’s Definiens for $150m to boost its immuno-oncology operations. The firm’s technology analyses tumour images to work out the location and type of cancer under study.
Given the strength of AstraZeneca’s financial firepower, I expect the firm to remain active in the M&A space to remain at the coalface of pharma innovation.