AstraZeneca
£29.05 -44p
Questor says BUY
It wasn't just a single drug disappointment – investors received a double dose. An ovarian cancer treatment called Olaparib will not move into Phase III testing after disappointing results, and antidepressant TC-5214 failed to perform in a second Phase III study.
However, the company said it would still hit its 2011 earnings guidance, but the reduction is likely to bring earnings per share down to the bottom of the guidance range of $7.20 to $7.40 a share. The charge works out at approximately 21 cents a share, so the implication is that the company could have beaten its guidance this year. It will not now do this.
This highlights the problem with Astra – it doesn't have a pipeline to get excited about. Indeed, with the group using its cash for share buy-backs – this year the group will buy back its own equity to the tune of $5bn – it almost looks like the company could be eating itself.
This is, of course, positive for shareholders and it will boost earnings per share, but with a thin pipeline of new future products, it is a cause for concern.
Next year is also likely to be a crunch year for Crestor – Astra's cholesterol-busting statin blockbuster. Rival Pfizer has seen its Lipitor cholesterol treatment go off-patent in the US and cheaper generic alternatives are now available. Indeed, sales of Lipitor plunged by half barely a week after its first US generic competition on November 30.
Astra shares are trading on a December 2011 earnings multiple of 6.1, rising to 7.2 next year and yielding a prospective 6.3pc in 2012. This compares with GlaxoSmithKline on an earnings multiple of 12.7 in 2011, falling to 11.7 next year. The prospective 2012 yield for Glaxo is 4.8pc, rising to 5.1pc.
Because of pipeline problems, Questor reckons investors should avoid AstraZeneca and show a preference for Glaxo instead, which aims to boost its consumer products arm.
