Since September 2024, the AstraZeneca (LSE:AZN) share price has lagged behind that of the FTSE 100. While the index has risen 10% and set a series of new highs, the stock market valuation of Britain’s most valuable company has fallen 11%.
A possible breakthrough
But on Saturday (30 August), news emerged of encouraging results from a trial of a new treatment for high blood pressure (BP). The European Society of Cardiology Congress in Madrid was told that Baxdrostat, being developed by AstraZeneca, could be an “important advance in treatment and in our understanding of the cause of hard-to-control BP.”
Unlike newspapers, scientists are not known for hyperbole. It was therefore left to the Sunday People to say it was a “gamechanger heart pill”. And that it could be available on the NHS within a year.
And with an estimated 1.3bn people worldwide suffering from hypertension — of which, around half are struggling to control their symptoms using existing medicines — the potential is huge. In 2024, AstraZeneca’s biggest-selling drug (Farxiga) accounted for 15% of all product sales. If the early promise of Baxdrostat can be fulfilled, then I could see it comfortably beating this.
Under scrutiny
However, drugs companies — including AstraZeneca — are facing pressure to bring down their prices. In the US, President Trump has written to the 17 largest, warning that his government will use “every tool in our arsenal” if they fail to cut prices by the end of September. In 2024, sales to America accounted for 40% of the group’s total revenue.
On this side of the Atlantic, talks between the government and the Association of the British Pharmaceutical Industry recently ended acrimoniously with the health security accusing its members of being “short-sighted”. The intention was to come up with a new agreement to replace the existing five-year deal – due to expire in 2028 – which governs the price at which drugs are supplied to the NHS. The agreement also includes a ‘clawback tax’ that requires them to pay a percentage of income on sales to the NHS above a certain threshold.
Pros and cons
But the initial trial results for Baxdrostat demonstrate why — in my opinion — we need AstraZeneca and its peers. And I suspect why the UK’s largest listed firm holds the whip hand in government pricing negotiations. In 2024, the group spent $13.6bn on research and development. Its scientists published 1,223 manuscripts with 175 of them published in “high-impact peer-reviewed journals”. And it paid billions in tax.
However, the group’s shares aren’t cheap, although to be fair they never have been. They currently (pre-market open on 1 September), change hands for around 35 times historic earnings. And for such a profitable company, its dividend isn’t particularly generous – the stock’s presently yielding 1.9%.
But the company uses a lot of its surplus cash to develop new medicines. Otherwise, it won’t survive. When its licences providing exclusivity expire, cheaper imitations usually hit the market. However, the group has an impressive track record of seeing off this competition and growing both its revenue and earnings. In 2024, core earnings per share were over double what they were in 2020. And it generates a huge amount of cash. Its operating cash flow was $15.9bn.
For these reasons, investors could consider adding the stock to their portfolios.
