Morningstar | AstraZeneca's Strong Oncology Platform Should Drive Overall Company Growth
AstraZeneca has built its leading presence in the pharma and biotech industry on patent-protected drugs and a developing pipeline that add up to a wide moat. The replenishment of new drugs is finally offsetting the recent patent losses on gastrointestinal drug Nexium and cholesterol reducer Crestor that have weighed on the company's growth potential. Although AstraZeneca's pipeline ranks toward the middle of its peer group, we think the company is developing several key products that hold blockbuster potential. In particular, the company's recently launched cancer drugs Tagrisso and Imfinzi are well-positioned based on leading efficacy in hard-to-treat cancers. These drugs should also carry strong pricing power, driving the potential to expand Astra's margins. Also, Astra is well-positioned in the respiratory and diabetes spaces, but these areas tend to have poor pricing power relative to cancer drugs.In addition to internal development, AstraZeneca has aggressively pursued acquisitions, with mixed results. The recent ZS Pharma acquisition yielded an interesting hyperkalaemia drug, but delays in getting the drug to the market have been concerning. However, the partial stake in Acerta looks to be developing well with new blood cancer drug Calquence.AstraZeneca is significantly cutting costs to mitigate lost profits from products losing patent protection. Initially announced in 2007 and subsequently expanded several times, AstraZeneca's cost-saving initiatives should save the company more than $6 billion annually. Further efficiency enhancements are likely to add to the cost savings over the long run. The cost savings should help the company navigate the patent losses on several high-margin drugs.Beyond cost-cutting, the firm also employed asset divestitures to help bridge the massive patent losses facing the firm. While the asset sales helped prop up earnings and support the dividend during a challenging time, the strategy is not sustainable and as new drugs gain traction, Astra will likely reduce the asset sales, which is strategically sound but will likely create a headwind to earnings growth.
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