More on Astrazeneca
Astrazeneca
Astrazeneca’s existing drugs are performing well and this together with well controled costs is driving good EPS growth. Given a number of recent disappointments its pipeline does not look as strong and Astrazeneca’s growth prospects look overly dependent on its anti-cholesterol drug, Crestor.
Recent news on approvals has been very disappointing with Exanta refused US approval. Exanta is a potential blockbuster drug and from which peak sales in excess of £1b were expected. It already has approval in Europe but only for a narrow range of uses. More recently the application for European approval for cancer drug Iressa was withdrawn after it proved to be ineffective. Astrazeneca will continue to try to gain US FDA approval but even if Exanta does gain approval it is likely to be restricted to a narrow range of uses globally, not only in the US. The narrow approvals are likely to rule out long term prescriptions of Exanta, and therefore its most lucrative potential market.
This is (yet another) example of the risks that the major pharmaceutical companies are exposed to by the reliance on a small number of blockbuster products, for both current sales and future growth.
Growth was strong in 2004 with sales up 9% at constant exchange rates and EPS up 24% in US dollar terms. Existing drugs (princiapally Crestor) will continue to drive growth in the medium term: Crestor sales reached $908m in 2004 and continue to grow strongly (20% higher in the fourth quarter than in the third). It was not the only growth driver in 2004 as schizophrenia drug Seroquel an cancer drugs added almost as much to sales. However Crestor is increasingly important going forward. Doubts have been raised regarding the safety of Crestor and these need to be watched.
Crestor should drive short term sales growth but with the pipeline weak we see long term growth being more limited.
The 15× prospective PE reflects the lack a pipeline to drive growth and dependence on Crestor for short term growth. A prospective yield of 2.5% provides a little support at this price.
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