The most attractive aspects of AstraZeneca (AZN) are an adequate annualized dividend, its high EPS, and its strong earning margins. AstraZeneca has a robust pipeline, but currently there are no blockbuster patents on its docket. New CEO leadership and the completion of the Bristol-Myers Squibb (BMY) Amylin acquisition may be enough to support modest capital appreciation in the near term. AstraZeneca is attempting to offset key patent expirations and increasing generic competition by partnering with other pharmas to develop treatments in high-margin markets. If wary of AstraZeneca's long-term outlook, current shareholders should consider around the end of October as an opportune time to trade or hedge against this position. Interested investors may consider other major pharmas with more potential for capital appreciation or ROI in the near term.
GlaxoSmithKline (GSK), Eli Lilly (LLY), Bristol-Myers Squibb, and Amgen (AMGN) are the firms most comparable to AstraZeneca due to mutual interests, similar market caps, or current partnerships. AstraZeneca's price is around 7.3 times earnings; this is nearly 50% lower than all of the aforementioned firms. AstraZeneca's 1.8 price-to-sales and 2.6 price-to-book ratios are also the lowest among these firms. AstraZeneca's $6.24 EPS is the highest among these firms, Amgen's $4.67 EPS is the second-highest among these firms. GlaxoSmithKline's 223.8% EPS growth this year is the highest among the firms, AstraZeneca's 31.1% EPS growth is the next highest. But its 4.2% projected EPS decline in 2013 is the worst among the firms; Eli Lilly's 11.5% EPS growth in 2013 is the highest among these firms.
AstraZeneca's sales have increased 4.8% through the past five years. Its ROE is around 36%, its operating margin is around 33.8% and its profit margin is around 26.6%; these margins are the highest among the firms, excluding GlaxoSmithKline's 66.2% ROE. AstraZeneca's current ratio is around 1.3 while its debt-to-equity ratio is around 0.38. Its beta score is below one but is one of the highest among these firms. Its average volume of around 1.5 million is the lowest among these firms. AstraZeneca's stock is up 5.9% YTD, but its 2.5% trading deficit over the past month is the worst among these firms. AstraZeneca's annualized dividend is around $1.80; its stock has decreased around 1.1% since its last earnings release.
In AstraZeneca's latest earnings release, the second quarter totaled $6.6 billion, decreasing 18% at CER YOY. The decrease in revenue was primary due to patent expirations, accounting for 15% of the revenue decline. Cost of sales totaled $1.34 billion, decreasing from $1.46 billion YOY. Core R&D expenses totaled $1.05 billion, decreasing 6% YOY; core R&D expenses accounted for 15.8% of sales. Core second-quarter operating profit totaled $2.26 billion, decreasing 27% at CER YOY; core operating profit accounted for 34.1% of sales, decreasing 530 bps YOY. Core net profit totaled $1.94 billion, decreasing 14% at CER YOY. The loss of exclusivity for Seroquel IR accounted for 80% of the 29% decline in U.S. revenues. Emerging market revenue increased 1% at CER; operational growth in these markets was 8% YOY.
Despite losing patent exclusivity and increasing generic competition, AstraZeneca remains on task for achieving its financial targets in 2012. The collaboration with Amgen, the acquisition of Ardea, and Bristol's complete acquisition of Amylin are the primary proponents for AstraZeneca's expectations on building a strong pipeline that retains exclusivity. AstraZeneca currently has 90 projects in its pipeline, seven of which have already been approved or recently launched. The other 83 projects are currently in phase clinical trials; nine of these are in Phase III development or are awaiting regulatory review. During the first half 2012, 22 of the projects successfully moved into their next phase of clinical trials and seven of these projects entered human testing. Only 10 of the projects have been withdrawn during this time frame.
At the end of September, Iressa, AstraZeneca's treatment for patients with advanced esophageal cancer, decreased the risk of the disease progressing in phase iii trials by 21% and provided a median progression-free survival rate two weeks longer than patients administered the placebo. Patients realized a modest benefit from the treatment, and it may prove to be an effective treatment during a relapse. More htan 480,000 people were diagnosed in 2008; esophageal cancer is the eighth most common cancer around the world. Developing countries account for 80% of the cases for this type of cancer. AstraZeneca also has a world development and collaboration agreement with the The Medicines Co. (MDCO) to have the latter's sales force promote Brilinta for the former.
MedImmune, AstraZeneca's biologics acquisition, recently partnered with the Cancer Research Institute and the Ludwig Institute. The hope is that MedImmune's antibodies could be key agent in utilizing the immune system as the tool against cancer. Success in these trials could provide some significant credence to the $15.6 billion buyout to acquire MedImmune. AstraZeneca also recently signed a global development and licensing agreement with Ardelyx for NHE3 inhibitors. RDX5791, the leading candidate administered orally, is in clinical trials for treating irritable bowel syndrome and sodium overload in patients with chronic kidney disease, heart disease and end-stage renal disease.
AstraZeneca's new CEO, Pascal Soirot, may be the catalyst behind creating some change and identifying new opportunities for growth from within the organization. The new CEO recently announced that AstraZeneca is suspending all stock buyback programs in order to sustain flexibility for implementing a strategy to help it grow revenues and bolster capital so it may entertain key acquisitions that may improve its portfolio. So far in 2012, AstraZeneca has completed $2.3 billion of its initial $4.5 billion target of net share repurchases for the year.
AstraZeneca spent $6 billion last year and $27 billion on share buybacks since 2012. The new CEO's change of pace thus far, alongside operational growth in emerging markets is appealing for AstraZeneca's long-term outlook. But, increasing competition and the failure to replace its blockbuster patent make the near term uncertain for this major pharma.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.