Not to be outdone by upstart biotech firms, pharmaceutical giant AstraZeneca [AZN] recently announced it has the capacity to provide one billion doses of COVID-19 vaccine, that it’s currently developing. How has this helped its share price?
The search for a vaccine to beat COVID-19 has resulted in good news for pharmaceutical giant AstraZeneca. On 21 May, it was announced that AstraZeneca has received $1bn in funding from the US Biomedical Advanced Research Development Authority. An agreement is in place for the company to supply at least 400 million doses of its vaccine, which is being developed at Oxford University — AstraZeneca says it has the capacity to produce a billion doses. A boon for AstraZeneca’s share price then?
AstraZeneca saw its share price rise 0.9% to 8,961p the day of the announcement, just short of a new all-time high close of 9,004p achieved just the week before.
Its share price is up 14.4% for the year to date (through 4 June). By comparison, GlaxoSmithKline’s [GSK] share price is down 4.9% since the start of 2020, while Pfizer’s stock [PFE] dropped 6.2%. Furthermore, AstraZeneca’s share price has outperformed both the FTSE 100 Index and NYSE Composite since the beginning of January.
While the company has seen its star rise as one of the frontrunners to release a vaccine, could the global pandemic help its share price increase even further?
The impact of the coronavirus
In recent weeks the company — the product of a merger in the late 1990s between UK-based Zeneca Group and Swedish firm Astra AB and is listed on both the London and New York Stock Exchanges — has overtaken Unilever [ULVR] and Royal Dutch Shell [RDSA] to become the UK’s biggest company in terms of market capitalisation.
On 29 April AstraZeneca released its earnings report for Q1 2020, which beat expectations. Total revenue for the quarter was $6.4bn, up 15.7% on the year-ago quarter’s revenue of $5.5bn — analysts had predicted revenue of $5.91bn, according to CNBC. As for earnings per share, the company beat Zacks’ expectations for the quarter by $0.06 — $0.53 against $0.47 expected.
AstraZeneca revenue for Q1 - a 15.7% YoY rise
AstraZeneca’s strong performance in the first three months of fiscal 2020 is thanks mainly to its portfolio of products for major health conditions and diseases, including cardiovascular and gastrointestinal problems and cancer. Cancer-related drugs and treatments sales amounted to $2.5bn, up 34% year-over-year. The short-term stockpiling of respiratory drugs has also been key.
As is the nature of health, though, pharmaceutical companies depend on people to be visiting doctors hospitals and seeking treatment and medication to generate the majority of revenue. AstraZeneca hasn’t been immune to the impact of COVID-19.
While it has maintained its guidance for the rest of the fiscal year, the company expects the coronavirus to have “an unfavourable impact”, albeit lasting just a few months. As it stands, it forecasts a high single-digital to low double-digit percentage increase in total revenue for the full twelve months. Meanwhile, EPS is expected to grow by a mid to high-teens percentage.
When it first warned of the impact during its Q4 2019 earnings call back in February, COVID-19 had only affected China. Since then, the pandemic has become a global situation. During the Q1 2020 earnings call, AstraZeneca CEO, Pascal Soriot (pictured), acknowledged there could be a downside to reduced hospital visits, missed operations and delays to treatment in China and across Europe and the US. Shareholders were informed they would be updated on the situation in the Q2 earnings report.
|PE ratio (TTM)||53.12|
|Quarterly Revenue Growth (YoY)||20.00%|
AstraZeneca share price vitals, Yahoo Finance, 5 June 2020
Why drug research and development is key
The upside is that research and development into drug treatments is continuing to bear fruit. The company unveiled data at the American Society of Clinical Oncology’s annual meeting (held 29-31 May) that could lead to the number of patients able to be treated with its top-selling cancer drug Tagrisso being increased. The company began testing the efficacy of its drug in quelling excessive immune responses to COVID-19 in April, according to Bloomberg.
The more people that can access treatments and the more drugs AstraZeneca continues to develop, the more reassured shareholders will be on the dividend front, argues Russ Mould, investment director at AJ Bell.
“AstraZeneca’s quarterly earnings are quite volatile, but a promising growth trend appears to be developing and investors will be looking for this to feed through to cash flow, as it is cash flow that funds the company dividend,” said Mould. “The drug giant generated positive cash flow from operations in Q1, in contrast to the outflows of the prior two years, so that is a good start.”
“The drug giant generated positive cash flow from operations in Q1, in contrast to the outflows of the prior two years, so that is a good start” - Russ Mould, investment director at AJ Bell
He added: “Treatments such as Tagrisso, Imfinzi and Lynparza for cancer and Symbicort for respiratory diseases continue to strongly drive sales and help offset declines in long-time stalwarts, such as Pulmicort, Nexium and Crestor, which are now open to competition from generic rivals.”
At the close of trading on 4 June, AstraZeneca’s share price was 8,530p. Among the 20 analysts polled by MarketBeat, 14 give the stock a buy, two a hold and four a sell rating. The average 12-month price target of 8,258p would represent a 96% increase on its current price.
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