British Drugmaker Well Worth The Risk

4/20/2009


  Recent Price
$34
  Dividend
$2.05 e
  Yield

6.0% e

  P/E Ratio
7
  Shares (millions)
1,447
  Long-Term Debt as % of Capital
40%
  52-Week Price Range
$49.85 - $29.96

AstraZeneca ($34; AZN) boasts an enviable pipeline and has few patents set to expire in the near future. However, concerns about one of its key drugs have weighed on the stock in recent weeks. Despite the heightened uncertainty, AstraZeneca offers an enticing value. The stock, yielding about 6.0%, is a Buy and a Long-Term Buy.

Product mix
AstraZeneca’s portfolio includes 11 products that generate more than $1 billion each in annual sales. Of these top drugs, Crestor (cholesterol) and Symbicort (asthma) are the fastest growers, with sales surging nearly 30% in 2008. Sales for Crestor may have benefited from studies suggesting it lowers the risk of heart-related death in patients with normal cholesterol levels. Crestor’s chief patent expires in 2016, though generic rivals keep seeking loopholes. The patent for cancer drug Arimidex expires in 2010, but no other major drugs face generic competition before 2012.

AstraZeneca, itself formed in a 1999 merger, could pursue smaller European drugmakers to augment an already robust pipeline. AstraZeneca started the year with 98 projects in development, including 33 in late-stage testing or under regulatory review. The company expects to file six new products for approval in the U.S. this year. Three of the more promising drugs are Brilinta (a blood thinner), Zactima (lung cancer), and Onglyza (diabetes). An FDA panel recommended the approval of Onglyza on April 2.

The Seroquel story
AstraZeneca’s second-biggest seller, the antipsychotic Seroquel, generated $4.45 billion in revenue last year. The drug comes in two forms, with the XR version making up less than 20% of the Seroquel platform’s sales but accounting for 37% of U.S. prescription growth. AstraZeneca hopes to market Seroquel XR to the more than 20 million Americans suffering from depression or anxiety, but its side effects could give regulators pause.

The drugmaker faces more than 9,000 lawsuits from former Seroquel patients claiming the drug caused weight gain, high blood sugar levels, and even diabetes. The U.S. government is also investigating the drug’s marketing. Internal company documents suggest executives knew of the risks more than a decade ago and concealed them.

One study found that atypical antipsychotic drugs, such as Seroquel XR, can cause nervous disorders and even sudden cardiac death. An FDA panel backed Seroquel XR as a secondary treatment for depression but considered the potential side effects too severe to treat anxiety.

Conclusion
Projecting how Seroquel’s troubles will affect AstraZeneca’s operating results is difficult. But at the very least, sales growth should slow from the 11% seen in 2008. Legal problems could also result in a sizable payout. However, the stock’s current price reflects plenty of bad news and appears to undervalue the broad pipeline.

AstraZeneca trades at less than seven times estimated year-ahead earnings, 45% below the five-year average forward P/E of 12. Wall Street projects per-share-profit growth of 7% this year. March-quarter results are slated for release on April 30. An annual report for AstraZeneca PLC is available at 15 Stanhope Gate, London, W1K 1LN, United Kingdom; (800) 456-3669; www.astrazeneca.com.

ASTRAZENECA
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Dec '08 $1.18 vs. $1.04 +1% $45.61 -

$32.58

9 - 7
Sep '08 1.32 vs. 0.99 + 8% 49.85 - 41.98 11 - 9
Jun '08 1.25 vs. 1.19 + 8% 45.27 - 39.22 10 - 9
Mar '08 1.28 vs.

1.06

+ 10% 46.84 - 35.03 11 - 8
           
Year
(Dec.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2008 $31.60 $4.82 $1.90 $49.85
-
$32.58 10 - 7
2007 $29.56 $4.28 $1.75 59.47
-
42.21 14 - 10
2006 $26.48 $3.85 $1.41 66.49
-
44.90 17 - 12
2005 $23.95 $2.91 $1.02 50.13
-
34.72 17 - 12
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
95 67 79 93 78 88 59

   * Earnings exclude special items. e dividend and yield estimated.
   † Quadrix® scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com