Spotlight on FTSE 100 stock AstraZeneca

It’s 25 years since the merger of a UK and a Swedish firm formed pharmaceuticals heavyweight AstraZeneca.

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A couple of things drew my attention to one particular FTSE 100 company last week.

First, 6 April marked the 25th anniversary of the merger of Sweden’s Astra AB and the UK’s Zeneca Group to form AstraZeneca (LSE:AZN).

And second, perhaps fittingly for the anniversary week, the biopharmaceutical firm made three positive announcements on drug trials/regulatory approvals.

Over the last quarter of a century, AstraZeneca has grown into one of the FTSE 100’s powerhouses. In fact, it became the Footsie’s biggest company for the first time in 2020.

Questions

One interesting question is: how did AstraZeneca get to where it is today?

Another, more pertinent one for investors currently considering buying the stock, is: can it deliver for shareholders in the future?

A 744% return

On the first day of trading in 1999, AstraZeneca’s shares closed at £29.46. The company had 1,776m shares in issue, meaning its market capitalisation (the value of the whole company) was £52.3bn.

Today (6 April), the share price is £106.20. There are 1,550m shares in issue and the market cap is £164.6bn.

The market cap has increased 215%, but due to the lower number of shares in issue today the share price has increased 260%.

Over the years, AstraZeneca has bought back and cancelled more shares than it’s issued. This shows how share buybacks by successful companies can add value for long-term investors.

Furthermore, AstraZeneca has not only enhanced returns by buying back shares, but also by paying dividends. According to broker AJ Bell, the total return including reinvested dividends works out at 744%.

Patience pays

The journey hasn’t been a smooth one for long-term shareholders. It’s not been a case of the business steadily growing and the share price steadily rising each year.

However, few companies accomplish that feat across a quarter-of-a-century timeframe.

Investors often need patience through difficult periods to reap the full rewards of long-term business success.

Patents and pipeline

When current CEO Pascal Soriot arrived in 2012, the company was in a phase of patent expiries on some of its key blockbuster drugs.

Its 2012 revenue of $28m was down 17%. And there were still big expiry dates to come. Cholesterol drug Crestor and acid reflux treatment Nexium, which together contributed over $10bn of the 2012 revenue, were set to lose US patent protection in 2014 and 2016, respectively.

Furthermore, the company’s late-stage pipeline of new drugs was weak. Soriot made it clear there was no quick fix for the pressure on revenue.

Ultimately though, his strategy to restructure the company, reinvigorate research, and return the business to growth delivered results. The trend of declining revenue reversed decisively in 2019.

Big is no obstacle to bigger

What of the prospects for investors considering the stock today?

The first point I’d make is that just because a company is already very big doesn’t mean it can’t get an awful lot bigger.

AstraZeneca may be a goliath of the FTSE 100, but on the international stage it doesn’t make it into the top five largest companies in the sector. The biggest of them, US-headquartered Eli Lilly, has a current market cap of $746bn — over three-and-a-half times the size of AstraZeneca.

There’s no inherent reason why the UK company can’t grow as big.

Opportune time

Another point for investors to note is that AstraZeneca’s share price is currently lower than its all-time high. That high — £122.94 — was made just under a year ago. The current price of £106.20 represents a discount of 14%.

With no real change to the long-term story, now may be a more opportune time for investors to consider the stock than this time last year.

Risk and reward

An investment in AstraZeneca is not without risks. As seen from the history of the company, patent expiries are a key one. Because of the long lead-time to develop new drugs, it’s essential pharma firms successfully replenish their pipelines on an ongoing basis.

This brings me back to the aforementioned batch of positive announcements on drug trials/regulatory approvals the company issued last week. These are just the latest reflection of what has become consistently strong progress in research and development.

In the company’s annual results, CEO Soriot was able to boast of the firm’s “rich R&D pipeline“, double-digit earnings growth, and guidance for more of the same in 2024.

Prospects beyond that look good too. City analysts have pencilled in continuing double-digit growth in 2025 and 2026. A sustainable future at that level of growth would seem to promise rich rewards for long-term investors.

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.

Graham has no position in the stocks mentioned. The Motley Fool UK has recommended Aj Bell Plc and AstraZeneca Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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