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AstraZeneca - first-half sales up despite COVID-19 shortfall

AstraZeneca' first-half sales grew by 4% to $22.3bn, ignoring the effect of currency movements.

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AstraZeneca's first-half sales grew by 4% to $22.3bn, ignoring the effect of currency movements. COVID-19 medicine revenues fell by $2.2bn but other sales were up 16% more than offsetting this decline. The biggest increases were seen in therapies for cancer and Cardiovascular, Renal and Metabolism (CVRM) conditions.

Underlying operating profit grew by 20% to $8.2bn helped by a growing sales contribution from higher margin products and a $0.7bn non-cash gain relating to a change in the relationship with one of its partners.

Free cash flow was up 11% to $4.5bn. Net debt was $24.0bn, down from $24.7bn at the same point last year.

The interim dividend was held flat at $0.93 per share. AstraZeneca reiterated full-year guidance of low to mid-single-digit revenue growth.

The shares were up 3.6% following the announcement.

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Our view

AstraZeneca is thus far managing to plug the gap from falling sales of COVID-19 medicines, with higher value speciality medicines. That's providing a welcome boost to profits. 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. And the diverse late-stage pipeline means there are lots of potential shots on goal.

But previous success means it's set the bar high for itself. And as recent clinical results have proved, investors can take fright when therapeutic benefits of new drug candidates fall short of their expectations. Given the risks inherent in drug discovery, nothing's guaranteed.

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.

Astra's also focussing on the lucrative rare diseases market, with good progress being made in accessing previously unreached patients and regions. We're supportive of the push here and think the recent $1bn acquisition of preclinical assets from Pfizer could present some exciting opportunities in this space. But as they've not been tested in humans yet, any commercial launches will be some years away.

Markets expect net debt to fall to from 2.5x to about 1.2x cash profits this year. But with debt levels in the first half higher than at the end of 2022, there's plenty to do to meet those forecasts. With interest rates the highest they've been for many years, 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. 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.

Whilst the valuation has come down from the heights seen during the pandemic, it still sits towards the top end of its peer group. This premium isn't without merit. Its growth records are also towards the top of the table, but this does bring added pressure to keep delivering.

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.

ESG data sourced from Sustainalytics

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: 28th July 2023