Why AstraZeneca Plc Has Underperformed The FTSE 100 Over The Past Year

… but AstraZeneca plc (LON: AZN) could still be a long-term winner.

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The share price of AstraZeneca (LSE: AZN) (NYSE: AZN.US) has seriously underperformed the FTSE 100 over the past year, rising only 8.5% compared to the index’s 14% gain.

So what’s going wrong? Well, the company has suffered from two main problems for several years now.

The first is that many of its established products have seen their patents expire, meaning they could be manufactured by others and therefore could no longer command a premium price.

And the other problem is that the pipeline of potential new products has been running dry, meaning there have been no new ‘blockbuster’ treatments — those that generate £1bn or more of revenue a year — to replace the ones the blue chip has lost.

Encouraging news

But the past year has also seen some encouraging news coming from AstraZeneca.

At the end of August 2012, the company announced that Pascal Soriot would be its new chief executive officer. Soriot was previously chief operating officer of Roche, one of the industry’s most successful developers of new pharmaceutical products. AstraZeneca was clearly hoping that he’d bring much-needed expertise with him.

In January, Soriot shook up AstraZeneca’s senior management, removing superfluous layers to speed-up decision making, and giving a more prominent role to the R&D staff who essentially create the products that will generate the company’s long-term revenue.

And a couple of months later, Soriot unveiled a strategy intended to return the company to growth and to “achieve scientific leadership“, and made an “unambiguous commitment” to concentrate efforts and resources on AstaZeneca’s “priority growth platforms” and “priority pipeline projects“.

Strengthened pipeline

Then at the beginning of August this year, the company announced that its ailing product pipeline had been strengthened by the addition of three late-stage treatments in the firm’s core therapeutic areas of cardiovascular/metabolism and respiratory diseases.

If AstraZeneca can deliver on its new strategy, its shares, which are currently on a P/E of around 10 — well below the FTSE 100 average — could turn out to be something of a bargain. And while you wait for the growth to happen, there’s the comfort of a 6% dividend.

Super investor

That substantial dividend may be one reason that, despite its overall performance, AstraZeneca has remained a firm favourite of investment guru Neil Woodford,  who has a remarkable track record of picking winners.

If you want to know about the other dividend-paying blue chips that Woodford currently favours, get your copy of the FREE Motley Fool report, 8 Shares Held By Britain’s Super Investornow!

> Jon does not own any share mentioned in this article.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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