AstraZeneca has plenty in the tank


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$52.97 - $35.03

In recent months, British drugmaker AstraZeneca ($50; NYSE: AZN) has suffered some high-profile research setbacks. But over the next two to four years, a diverse drug portfolio and strong product pipeline should represent a competitive edge.

Like all producers of branded pharmaceuticals, AstraZeneca is vulnerable to generic competition. However, recent patent victories should extend protection of its two best-selling drugs for several years. The stock is a Long-Term Buy.

Diverse product mix
AstraZeneca produces drugs to treat a variety of conditions. Key markets include gastrointestinal (22% of 2007 revenue), cardiovascular (23%), neuroscience (18%), oncology (16%), and respiratory (13%) treatments. Eleven products generate more than $1 billion apiece in annual sales.

Ulcer and heartburn medication Nexium is the top seller, generating global sales of $5.2 billion in 2007. AstraZeneca’s five largest-selling drugs — Nexium, schizophrenia drug Seroquel, cholesterol-lowering medication Crestor, Arimidex for cancer, and respiratory agent Symbicort — generated $15.34 billion in sales last year, more than half of total revenue. Patent expirations on the five drugs range from 2009 to 2016, providing AstraZeneca with some time to replace the lost revenue.

The product pipeline features about 95 ongoing projects in clinical trials, including new drugs and extensions of existing brands. More than 30 drugs are in late-stage trials. Several potential blockbusters are slated for launch in the next three years, including new treatments for arthritis, blood clots, infections, and diabetes. In 2007, the company spent about $5.2 billion on research and development, more than 17% of revenue and up from $3.9 billion in 2006.

AstraZeneca supplements its internal drug-research program with acquisitions. In 2007, the company expanded its reach in vaccines and biological compounds by acquiring MedImmune for $15.6 billion in cash.

In 2007, AstraZeneca generated 80% of its revenue from North America and Western Europe, 6% from Japan, and the remainder from emerging markets.

Patent victories
AstraZeneca won an important legal battle in July when a court upheld a patent on schizophrenia drug Seroquel, which generated more than $4 billion in 2007 sales. Many had expected a generic version to launch later this year, but the ruling will likely delay U.S. generic competition until 2011. The delay gives AstraZeneca more time to market a version of the treatment intended to replace Seroquel before its patent expires.

In April, the company settled a lawsuit to keep a generic version of heartburn drug Nexium off the U.S. market until 2014, despite the expiration of a patent in March.

AstraZeneca’s per-share profits excluding special items rose 7% and topped consensus estimates by $0.17 in the June quarter. The company raised its 2008 per-share-profit estimate to a range of $4.60 to $4.90, well above the $4.46 consensus. The shares rose on the profit news but still appear cheap at 11 times the low end of company earnings guidance for 2008. An annual report for AstraZeneca PLC is available at 15 Stanhope Gate, London, W1K 1LN, United Kingdom; (800) 456-3669;

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