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AstraZeneca - Covid sales in retreat as focus moves to pipeline

AstraZeneca reported full year 2022 revenue of $44.4bn, up 25% ignoring the effect of exchange rates.

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AstraZeneca reported full year 2022 revenue of $44.4bn, up 25% ignoring the effect of exchange rates.

The top line saw growth in all therapy areas, but also enjoyed a strong contribution from the rare disease specialist Alexion, which was acquired halfway through the prior year. Astra's COVID jab Vaxzevria saw revenues more than half to $1.8bn.

Operating profits more than trebled to $3.8bn, reflecting a positive mix impact as lower margin COVID vaccine sales were replaced by high value treatments for cancer and rare disease.

Free cash flow of $8.7bn was up 79% and net debt fell from $24.3bn to $22.9bn.

Total revenue from COVID-19 medicines is expected to decline significantly in 2023, with minimal revenue from Vaxzevria. Guidance implies this will be more than offset by other medicines, with total revenue expected to increase by a low-to-mid single-digit percentage.

The board declared a dividend of $1.97 per share.

The shares were up 3.5% in early trading.

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Our view

Having climbed the COVID mountain, Astra now appears to be approaching the COVID cliff with associated revenues expected to fall sharply this year. But Astra's used the windfall wisely and has ploughed nearly $20bn into R&D over the last two years. That doesn't always guarantee success in Pharma, but Astra's hit rate in the clinic is impressive.

Drug approvals in major markets reached record levels in 2022, giving CEO Pascal Soriot confidence that Astra is on a path to deliver at least 15 new medicines before the end of the decade. This could help underpin growth well into the future. But given the risks inherent in drug discovery, nothing's guaranteed.

AstraZeneca is seeing strong growth in its high value speciality medicines. Excluding COVID-19 vaccines and therapies, it now has 12 blockbuster medicines generating annual sales of at least $1bn each.

Cancer treatments (about a third of sales) are a cornerstone of Astra's offering and saw healthy double digit growth last year. 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.

Biopharmaceuticals are currently the biggest contributor to revenue. COVID-19 medicines make up just 20% of their total sales still and with significant clinical trials in progress the potential to build out this part of the business longer term remains significant.

We view Astra's acquisition of Alexion as a big jump towards becoming a leading player in the lucrative rare diseases market. Astra is well placed to make further opportunistic acquisitions with two already under its belt in 2023.

Net debt's came in at just over two times cash profits, which isn't unmanageable. But with interest rates on the rise, we'd like to see debt levels come down. Especially given other demands on cash resources. The group's likely to put more money into research and development, as recent clinical results give it the confidence to launch additional late-stage clinical trials.

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.

The valuation's not in bargain territory, broadly in line with the long-term average. That's despite recent earnings downgrades by analysts and the suspension of COVID treatment, Evusheld, by the US authorities. With that in mind we feel the valuation is likely to be sensitive to any further disappointments either in earnings, or in the clinic.

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: 9th February 2023