Big pharmaceutical companies create the medications that keep countless people around the world healthy, but that hasn’t helped their ailing stock prices this year. The United Kingdom-based AstraZeneca has been no exception, but its shares could get a shot in the arm in 2024.
The company’s American depositary receipts, which trade under the ticker AZN, have had a tough 2023, down 0.7% to a recent $67.35. Some of that is an industry issue—the SPDR S&P Pharmaceuticals exchange-traded fund has gained a mere 2.4%—but a good chunk was earned. Like rival Pfizer, AstraZeneca has seen sales of its Covid-19 vaccine slow, and in October, it released disappointing trial data for its lung cancer treatment datopotamab deruxtecan, developed with partner Daiichi Sankyo. That setback meant it was one of the few stocks that went nowhere during November’s monster rally, underperforming the S&P 500 index by nearly seven percentage points.
Look for a better 2024. Consensus estimates call for the company to deliver double-digit earnings growth—roughly 14% and 15% in 2024 and 2025, respectively—driven by a diverse portfolio of blockbusters, such as diabetes medication Farxiga and ovarian cancer treatment Lynparza, which should generate sales of more than $3 billion each. AstraZeneca also has results due from any number of clinical trials that could provide catalysts for the stock. Shares also look reasonably priced heading into the new year.
“AstraZeneca has some of the best research and development productivity in large-cap pharma, [and] data readouts for key assets…may remind investors about the strength of its R&D engine,” says Luyi Guo, a research analyst at Janus Henderson Investors, which owns the stock in several of its funds.
Oncology is AstraZeneca’s biggest business, accounting for a third of sales last year, led by lung cancer treatment Tagrisso. Earlier this week, the company announced its acquisition of Chinese cancer specialist Gracell Biotechnologies.
Yet it also has key drugs in areas such as cardiovascular health and immunology, while “rare diseases” accounted for nearly 16% of its top line in 2022, with some analysts seeing the possibility for more margin-boosting specialty products. These so-called orphan drugs tend to be more profitable, given their higher prices and exclusivity, and AstraZeneca is pushing further into this area, as demonstrated by its purchase of some of Pfizer’s rare-disease therapies in September. In fact, bottom-line growth is projected to climb 9% to 14% annually through the end of the decade, comfortably ahead of its peer group.
It’s the new products, though, that could add real pop to AstraZeneca’s stock. Immunotherapy drug Imfinzi—already one of AstraZeneca’s best sellers—will see trial results for new cancer applications, alone and in combination with other drugs. In addition, Guo points to Baxdrostat, which is being developed for treatment-resistant hypertension and chronic kidney disease, as due for a potentially promising update in 2024.
Even datopotamab deruxtecan, the lung cancer drug behind the stock’s October tumble, has been shown to cut the risk of disease progression or death by 37% in some non-small-cell lung cancers compared with chemotherapy, Guo notes. She expects more data from the drug—used alone and with other treatments—next year.
Guo isn’t alone in seeing the potential in new products. TD Cowen analyst Steve Scala highlights Enhertu, Calquence, and Saphnelo, which treat various cancers and lupus, and Beyfortus, a drug to prevent respiratory syncytial virus, or RSV, as collectively having “$15 billion-plus in sales potential to AstraZeneca in 2030.”
AstraZeneca could even enter the obesity market—one of the hottest areas in drug development today—with its exclusive licensing agreement worth up to $2 billion with Chinese company Eccogene for ECC5004, currently in early development. While injectable GLP-1 medications like Novo Nordisk’s Ozempic have grabbed headlines, ECC5004’s pill form would make for much easier administration.
Of course, drug development doesn’t always pan out, and bottom-line estimates for Big Pharma companies have largely come down in recent months, hurting their reputations as relatively stable earners. With a presidential election on the docket in 2024, saber-rattling about drug prices is likely.
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Nonetheless, AstraZeneca’s wide pipeline gives it plenty of shots on goal in 2024, and new, innovative drugs can command more pricing power and tend to carry higher margins.
Those shots look worth taking, particularly at AstraZeneca’s current valuations. The shares change hands for just 16.1 times forward earnings, well below their five-year average of 19.5 times and the S&P 500’s 19.6 times. It’s also cheaper than rival GLP-1 drugmakers Novo Nordisk and Eli Lilly. And while AstraZeneca might look slightly pricier than peers like Merck and Amgen, its projected earnings-per-share growth through the end of the decade is also ahead of the industry average.
After a painful 2023, that’s just what the doctor ordered.