Pharmaceutical company AstraZeneca (LSE: AZN) (NYSE: AZN.US) has been in the doldrums for a while now. The company’s share price has been becalmed by a succession of patent expiries and lack of successes in its drugs pipeline.
Last year the patent on Seroquel expired, and next year the patent on heartburn drug Nexium expires. The loss of exclusivity of these blockbusters has meant that sales and profits have been falling.
More innovative and less risk-averse
The lack of a clear strategy to reverse this decline cost chief executive Dave Brennan his job. But new chief executive Pascal Soriot has shown an impressive ability to sort out AstraZeneca’s troubles and reshape it as a company with a focus on areas that promise growth in the future.
He is encouraging the company to be more innovative, basing the company’s research activities in the buzzing ‘life sciences’ hub of Cambridge, which Soriot thinks could rival San Francisco and Boston. His aim is that the business feeds off this entrepreneurial spirit and is less risk-averse and more ambitious.
He is making considered acquisitions, often of biotech companies with bright ideas but small pockets, and he is focusing research in the areas of cardiovascular medicine, oncology and respiratory drugs.
A more future-proof company
He is a former executive of Roche, which, of all drugs companies, has been quickest off the mark in embracing the new boom in biologics and biotechnology. If Astra can future-proof itself in a similar way, then this company may just be a great turnaround opportunity.
The simple numbers show why AstraZeneca is a buy: the company is on a forward P/E ratio of just 9 (compared to 14 for GlaxoSmithKline), with a dividend yield of 6%. With profitability now stabilising after all the patent expiries, and with routes to growth such as emerging markets and biotech, this is a value/turnaround play with the potential for long-term growth.
For all these reasons, AstraZeneca is a buy.
One of the value plays of the year?
Personally, as an investor, value investing forms the central tenet of my investing philosophy. AstraZeneca’s low P/E ratio and high dividend yield make it one of the value and income plays of the moment.
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> Prabhat owns shares in GlaxoSmithKline, but owns none of the other shares in this article. The Motley Fool has recommended shares in GlaxoSmithKline.
