AstraZeneca’s second-quarter revenue was in line with forecasts at $15.4bn, up 5% when ignoring exchange rate impacts. Oncology, Respiratory and Rare Disease more than offset weakness elsewhere in the therapeutic mix.
Core operating profit rose 10% to $5.2bn, with margins up two percentage points to 34%, as revenue growth and improved product profitability more than offset rising Research & Development and other costs.
Free cash flow in the first half declined 18% to $4.9bn, as a higher share of profit was absorbed by day-to-day operating cash movements and higher tax payments. Net debt increased from $25.3bn to $26.9bn.
AstraZeneca reiterated full-year guidance for mid-to-high single-digit revenue growth and low double-digit growth in core earnings per share.
The shares were up 1.2% in early trading.
Our view
As expected, growth slowed a little in AstraZeneca’s second quarter, but steady delivery was enough to see investor sentiment warm slightly after a recent late-stage trial disappointment. Performance across the underlying business was mixed. Even so, full-year guidance remains intact, while investment in the pipeline and product launches remains high.
Setbacks are part and parcel of drug development, but Astra still has plenty of opportunities to go after and continues to put significant cash behind its research and development growth engine. That spending is translating into real progress, with 30 approvals in major territories since last year’s results were published.
The unchanged 2030 targets still look achievable, with Astra aiming for $80bn of annual revenue and a mid-thirties operating margin. The revenue ambition is well supported by the depth of the pipeline and the existing portfolio, and there could be scope for outperformance if clinical and launch momentum continues.
But those ambitions still require a lot to go right, and pipeline investments can take time to pay off, which could put near-term margins under pressure. That’s to be expected, but if new drug approvals and launches don’t pan out as hoped, it risks becoming a longer-term issue rather than a short-term timing effect.
Cancer treatments are a cornerstone of Astra’s offering. The diverse late-stage pipeline means there are lots of potential shots on goal as it pioneers technologies with the potential to replace existing treatment regimes. Other areas of focus include autoimmune illnesses, cardiovascular conditions and rare diseases. Astra’s not currently selling any next-generation weight management (GLP1) products, but it’s making strong clinical progress and is a space to watch.
Net debt has been moving up, but at just over 1x forecast cash profits, we’re not too concerned at this stage, although it’s something we’re monitoring. Astra’s generating strong cash flows from its existing portfolio of marketed medicines. This helps support a prospective dividend yield of around 2.0% as well as investment.
We’re optimistic about the outlook for this prolific drug developer, and the company’s rich pipeline has the potential to drive better-than-guided profit over the medium term. In the meantime, the current valuation weakness means there could be some upside on the table if the company can meet near-term forecasts. But recent events show that, despite AstraZeneca’s breadth, disappointments can still cause an outsized reaction, which raises the likelihood of volatility.
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. However, ongoing investigations into employee activities in China should be closely followed. The executive compensation plan included 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 LSEG Datastream, based on previous day’s closing values. 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.
