AstraZeneca (LSE: AZN) with a market cap of £165bn is the second largest FTSE 100 stock after Shell, and constitutes 8.2% of the total Footsie market cap of £1,996bn. It is the world’s eight largest pharmaceutical company.
AstraZeneca was founded in 1999 through the merger of the Swedish company Astra AG and Britain’s Zeneca Group. Zeneca itself was formed in 1993 by the spinning off by ICI of its pharmaceutical operations.
For the 29 years since 1993, the company has been growing consistently. It has far outperformed the FTSE 100 index. Its share price has increased by an annual average of 13.88%, against an annual average increase for the Footsie of 4.74%.
The UK inflation rate for this period was 2.05% per annum. Excluding dividends, £1,000 invested in Zeneca in 1993 would have grown to £26,840 today while £1,000 invested in a FTSE 100 tracker fund would have only grown to about 9% of this, to £2,375.
AstraZeneca is currently paying an annual dividend of 2.0%. It is the only a ‘buy and hold forever’ stock in my portfolio. For me, it is in a class of its own as a large-cap FTSE 100 stock, many of which tend to be sluggish performers.
My decision to buy the stock was influenced by the fact that in the last 15 years, 2016 was its only down year.
AstraZeneca is a developer, manufacturer and marketer of a wide range of drugs and pharmaceutical products for oncology, cardiovascular, gastrointestinal, infection, neuroscience, respiratory and inflammatory health problems. It was one of the leaders in the race to develop a vaccine for the Covid-19 pandemic.
The world’s major pharmaceutical companies spend many years and vast sums of money in the search for new ‘breakthrough’ drugs — those that can generate £1bn or more in annual sales.
From the time a new drug receives regulatory approval, the clock is ticking on its patent exclusivity. Once this expires, typically in a decade or two, revenues for the original drug fall. For the last 10 years the leading companies have been spending about a quarter of their revenues on new drug development.
For investors like me, it is important that pharmaceutical companies have drugs in their pipelines with breakthrough potential, together with adequate funds to finance their development and trials. It is a highly competitive and inherently risky business.
The future
Before the Covid-19 pandemic put the global pharmaceutical industry in the spotlight, there were already major challenges facing it. Worldwide, the number of people aged 65 or more is projected to double — to over 1.5 billion — by 2050.
In addition, the growing middle class with increasingly sedentary lifestyles is leading to greater demands on health services. Chronic non-contagious diseases, such as cardiovascular disease and cancer, are expected to become increasingly prevalent and will demand innovative pharmaceutical solutions.
I believe AstraZeneca is well placed to thrive under this scenario and sustain its outstanding historical growth for many years to come. It has several new breakthrough drugs in its pipeline. For oncology, its drug Enhertu has been granted five separate breakthrough therapy designations by US regulators.