Over the past five years, AstraZeneca’s (LSE: AZN) share price has risen over 120%, while the FTSE 100 has stalled. Aside from underlining the gains that can be made by individual stock picking, this indicates to me that AstraZeneca in particular has done much right.
However, according to several reports, the global biopharmaceutical giant may spin off its lucrative China business. The listing of a separate unit in Hong Kong or mainland China is also rumoured to be an option.
AstraZeneca’s share price is likely to reflect this speculation in the coming days, as is the market way. So, would this be a good or bad thing for the London listing?
Pros and cons
On the positive side, China accounted for 13% of AstraZeneca’s total sales. It is also the country’s biggest drugmaker.
Additionally, several of its major drug lines are geared towards the elderly, and China has a fast-growing ageing population. Indeed, the World Health Organization estimates that the population aged over 60 in China will reach 28% by 2040.
From a macro perspective, a separate business might help to insulate the company’s China trade from increasing China-US tensions.
On the negative side, such a presence might draw AstraZeneca into the on-off trade wars fought between the two superpowers.
The company itself has not commented on the rumours, as expected. For me, while being aware of them, a focus on what is known is the way forward.
UK business is stellar
The company’s pipeline of new products has always been one of its strengths, and this remains the case. It currently has 179 items in the pipeline, while its main FTSE 100 counterpart GSK has 68.
This pipeline includes positive Phase III results for a Lynparza-plus-Imfinzi combination for ovarian cancer. The same status applies to Imfinzi for lung cancer. There is also promising new data for Enhertu across a range of cancer types.
Additionally in the year to date, the company has started six other new Phase III trials. It is also on course to initiate 30 over the course of this year.
Overall, it forecasts total revenue this year to increase by a low double-digit percentage, excluding Covid medicines. It also expects core earnings per share to increase by high single to low double-digits at the same time.
Its dividend yields are not as high as some FTSE 100 stalwarts, but they are better than others. It has paid out between 2% and 3% in the past three years.
The known risks for the share price to me are the same as for those of any biopharma business. It spends much time and money on product development and if one fails, it is a huge setback.
All of these companies are also open to legal action against them if products cause problematic side effects. Indeed, there’s currently a potentially large lawsuit in the UK over alleged side effects of AstraZeneca’s Covid vaccine.
However, I already have positions in the company with the expectation of continued strong growth and some dividend yield. If I did not have these shares already, then I would buy them right now without any hesitation.
