Summary
- AstraZeneca, profit beats expectations. But revenues are down due to lower COVID-19 sales.
- In 2023, almost zero vaccine intake. However, we are estimating a double-digit revenue growth thanks to Tagrisso, Evusheld, and Lynparza development.
- AstraZeneca deserves a P/E premium given its EPS track record and so our buy rating is confirmed.
Following AstraZeneca ( AZN ) Fiscal Year 2022 results, today we are back to comment about the Anglo-Swedish biopharmaceutical company. In 2022, we released a publication called Our Next Growth Pick in conjunction with Our Next Value Pick related to Sanofi. Our investment was supported by favorable MICRO takeaways on the Pharma sector based on 1) a low level of discretionary spending and 2) low manufacturing costs. In addition, AstraZeneca, thanks also to Alexion's integration, has a robust pipeline and continues to deliver solid quarterly results. Here at the Lab, we recognize the company as a clear leader in innovation (Fig 2) and this is confirmed by 30 Phase 3 trials expected in 2023. In detail, our internal team will carefully check the following:
- DS-1062 TROPION-Lung01 Phase 3 data which is expected to be announced in the first 2023 half;
- First pivotal data for Data-DXd in 3L NSCLC (TROPION-Lung01);
- PDL1/CTLA4 bispecific and PDL1/TIGIT in immuno-oncology division;
- Enhertu DB-06 breast cancer label expansion and Tagrisso LAURA (Stage III EGFR NSCLC) which are both expected to be announced in the second 2023 half.
Q4 and FY 2022 results
Aside from Astra's R&D pipeline, in Q4, the company delivered revenue of $11.2 billion versus the $12.01 billion recorded last year's same quarter. However, excluding the lower sales generation from the COVID-19 vaccine (Vaxzevria), the company's total top-line sales were up by 17% (which fully supports our thesis based on a growth story - Fig 1 on sales and EPS growth). Among the top-performing drugs are the cancer treatments Tagrisso, Evusheld, Lynparza, and Imfinzi. Despite a solid revenue generation in Tagrisso, we should report was a 7% miss versus Wall Street expectations and was mainly due to pricing pressure in Europe and lower Chinese sales with fewer hospitalized clients. Going down to the P&L, the operating income reached $1.09 billion compared with a prior year's operating loss of $292 million, this was due to a sharp increase in expenses following the Alexion acquisition, and again EBIT margin was slightly below average consensus estimates. However, cross-checking the company's press release, we note that the gross margin included CDMO cancellation fees and a $335 million impairment on Evusheld inventory which derived AstraZeneca's operating profit miss in the quarter.
The Anglo-Swedish pharmaceutical company reported a net income of $901 million, compared with a loss of $347 million in the fourth quarter of 2021, while earnings per share were $0.58 for the period versus a loss of $0.22 generated a year ago. Core earnings per share were $1.38, beating consensus expectations of $1.32, but down 17% on a quarterly adjusted basis. Here at the Lab, the company's underlying performances were broadly in line and were heavily distorted by tax and COVID dynamics. We already mentioned Vaxzevria development, on a tax basis, the Q4 benefitted from a positive settlement from prior years and also included a $124 million gain from the Waltham site disposal.
AstraZeneca Sales and EPS growth
Source: AstraZeneca Q4 and FY 2022 results presentation (Fig 1)
(Fig 2)
Conclusion and Valuation
Looking ahead to 2023, the company said it expects revenue to rise excluding COVID-19 medicines. Total revenues from COVID-19 medicines, including AstraZeneca's vaccine, are expected to decline in 2023, with little contribution from Vaxzevria (Fig 3). In a statement, CEO Pascal Soriot explained that the group is on track to achieve " industry-leading " increases in turnover " through 2025 and beyond ", adding that AstraZeneca's goal is to deliver at least fifteen new drugs before the end of the decade (Fig 4). In our number, we are making minor adjustments, in detail, we are forecasting (ex-COVID-19), sales growth of 13% with a core EPS growth of 12%, including a 3 billion sales in Lynparza revenue trajectory. Important to note is our AstraZeneca tax normalization is set at 19%. Key to emphasize is also our low cost in OPEX, despite a sharp uptick in investment in phase three drugs, this was supported by the Q&A analyst call. Fiscal Year 2022 results were supported by a plus 25% and 33% in revenue and EPS, with the company's indication to raise gross margins. Here at the Lab, we are making adjustments for a +0.4% EPS growth for the 2023-2025 period, but we are already ahead of Wall Street consensus estimates. So, despite higher EPS internal estimates, we decide to reiterate AstraZeneca's previous target price of £12,000p (and $72.5 in ADR). We believe that Wall Street equity analysts are largely pricing in new potential 2023 catalysts, forecasting a multi-$ billion peak in oncology sales. Aside from the usual pharma risks, we include an oncology small molecule portfolio risk due to the US IRA healthcare reform as well as the US drug price reform.
(Fig 3)
(Fig 4)
For further details see:
AstraZeneca: Reiterate Our Growth Pick