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AstraZeneca - 2024 heralds robust growth and busy pipeline

AstraZeneca's revenue in 2023 grew by 6% to $45.8bn, ignoring the impact of currency movements.

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AstraZeneca's revenue in 2023 grew by 6% to $45.8bn, ignoring the impact of currency movements. Growth was 15% when excluding the $3.7bn decline from COVID-19 medicines. The main drivers of this uplift were strong performances by Oncology and CVRM (Cardiovascular, Renal and Metabolism).

Underlying operating profit was up 14% to $8.2bn including a $0.7bn non-cash gain from an amended partnership.

Free cash flow came in at $9.1bn, while net debt fell by $0.4bn to $22.5bn.

In 2024, AstraZeneca expects both revenue and underlying earnings per share (EPS) to grow in the low double-digit to low teens range. Since 1st January, 27 phase III clinical trials have begun.

A dividend of $1.97 per share was declared, taking the full-year total to $2.90, unchanged from 2022.

The shares were down 1.9% in early trading.

View the latest AstraZeneca share price and how to deal

Our view

AstraZeneca has more than offset the collapse in sales of COVID-19 medicines, with higher value speciality medicines. It's also continued to drive forward its pipeline of new products, an area where Astra's hit rate in the clinic has been impressive.

Cancer treatments (about a third of sales) are a cornerstone of Astra's offering, and have remained a key growth driver. Often these drugs can maintain high growth levels for many years, as patient access improves, approvals are gained in new markets, and clinical trials prove their efficacy in additional diseases. And the diverse late-stage pipeline means there are lots of potential shots on goal. They vary in size but some such as dato-DXd which in some cancers could replace chemotherapy, have the potential to be transformational. But given the risks inherent in drug discovery, investors need to be prepared for disappointments.

The intense focus on product development can also be very expensive in terms of research and marketing, and we did see an acceleration in expense growth towards the end of last year. That's no bad thing, and drug development is a lengthy process, but increased internal investment can drag on profits, and it's important to look at the shares on a long-term view.

Net debt is sitting at about 1.7x cash profits which doesn't look too demanding. However, it's something to keep an eye on. The group's likely to put more money into research and development. Continuing success in drug approvals will be needed in order to offset the potential loss of revenue from patent expirations over the coming years. For now, however, Astra is generating strong cash flows from its existing portfolio of marketed medicines. This also supports the modest dividend yield, though nothing is guaranteed.

Astra's also using its firepower to beef up the research pipeline through deals with other players in the space and we're supportive of the continued focus on complementary acquisitions in novel areas of medicine. The focus in on ground-breaking therapies, should enable higher margins, and a strong competitive edge. That's earned it a valuation towards the top end of its peer group. But that premium isn't without merit, and given the shares are still at a valuation below the long-term average, we don't think that's too demanding.

Environmental, social and governance (ESG) risk

The pharmaceuticals sector is relatively high-risk in terms of ESG. Product governance, particularly with safety and marketing, and affordable access to treatment are the key risk drivers. Labour relations, business ethics and bribery and corruption are also contributors to ESG risk.

According to Sustainalytics, AstraZeneca's overall management of material ESG issues is strong. The executive compensation plan includes a target to eliminate greenhouse gas emissions by 2025, and the sustainability strategy is overseen by upper management. AstraZeneca has implemented a robust programme to monitor patient safety trends and ensure the quality and efficacy of its products. Access to healthcare is a key strategic priority. The company has a strong human capital development programme with initiatives to recruit and retain highly specialised employees, highly pertinent following the acquisition of Alexion which adds 2,500 headcount.

AstraZeneca key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 8th February 2024