Today I am highlighting what you need to know before investing in AstraZeneca (LSE: AZN) (NYSE: AZN.US).
Sales projections to haunt AstraZeneca later on?
In a bid to stave off the overtures of US rival Pfizer, AstraZeneca chief executive Pascal Soriot announced back in May that a rejuvenated research and development plan is set to turbocharge revenues to a mammoth $45bn by 2023.
This was a bold statement given that turnover at the company continues to slide, and group sales rung in at just $25.7bn last year. And as 
Barclays Capital points out, around $15bn of this projection is generated from drugs which are yet to pass through the company’s pipeline, a risky strategy given the hit-and-miss nature of drugs testing.
AstraZeneca has already cautioned that its massive restructuring plan — which includes the construction of a brand new state-of-the-art HQ in Cambridge and establishment of several ‘satellite’ bases across Europe and the US — will not make a meaningful contribution to the firm’s revenues until 2018 at the soonest.
In the meantime the business will continue to suffer the effect of crumbling patents, such as that of cholesterol-battler Crestor later this year — this one drug alone is responsible for more than a quarter of group turnover.
Against this backdrop AstraZeneca will need to continue delivering a steady stream of good news from its extensive testing network. The firm received a boost this week when the US Department of Justice closed annexed an investigation into a trial used to gain marketing approval for its Brilinta cardiovascular drug, long identified by the business as a significant sales driver in coming years.
But given the unpredictable and often prolonged process that new products have to pass through, any setbacks could deliver a hammerblow to the company’s earnings prospects.
AstraZeneca is expected to punch a third successive annual earnings dip this year, with a 13% fall currently pencilled in by City brokers. This leaves the pharma giant dealing on a P/E multiple of 16 for 2014, above the benchmark of 15 which is generally considered reasonable value for money. And this moves to 17.1 for next year amid predictions of a further 6% fall.
By comparison GlaxoSmithKline, which in my opinion has a far more bubbly pipeline than its rival, trades on far more attractive multiples of 14.8 and 14 for 2014 and 2015 correspondingly. Given AstraZeneca’s relatively-heady premium, I believe that any signs of spluttering product development could have a catastrophic effect on the firm’s share price.
