AstraZeneca (LSE:AZN) has spent the last few weeks being ground between the gears of the European Union’s political machine amidst geopolitical rows over vaccine supplies. One cannot but help feel a little sorry for the FTSE 100 stalwart given its commitment to supply its ADZ1222 vaccine at cost price for the duration of the pandemic. Since the company will not profit from ADZ1222, one might have expected that AstraZeneca would at least have enjoyed the kind of adoring publicity that has sent other pharma share prices soaring.
Whilst the share prices of pharmaceutical companies such as Moderna have appreciated by a factor of ten during the last 52 weeks thanks to developing a Covid-19 vaccine, AstraZeneca’s has remained grounded and today is at the same level that it was in mid-2019.
But the truth is that whilst the media headlines are focused on Covid-19 vaccines, many of which will yield no profit and all of which will face stiff competition as more new vaccines are approved, AstraZeneca is forging ahead with its portfolio of ‘on trend’ medicines that should prove increasingly profitable as they propagate into wider clinical use. This portfolio of medicines represents an upside which seems to be barely priced into the current shares.
Take AZD7442 as an example. It is an antibody combination medicine that could prevent people who are not a candidate for the COVID-19 vaccine from catching the virus for a period of six to twelve months. AZD7442 may also enhance the immune systems of people who have caught Covid-19, and so potentially improve individual survival rates. An analysis by Morgan Stanley suggests that AZD7442 alone could boost AstraZeneca profits by 30% in 2021.
AstraZeneca has also been churning out game-changing new medicines for the treatment of cancers at an impressive rate, which grew revenues in its oncology portfolio by 24% in 2020. Oncology is one of the biggest areas of pharma investment, and AstraZeneca owns some of the best new medicines for treating cancers. The company’s future pipeline also includes 172 projects and nine new drugs that are currently in late-stage trials. Taken together, this emphasises the company’s entrenched position as a global leader in oncology medicine.
Some investors have worried that plans to acquire Alexion Pharmaceuticals for $39 billion will be a false step by AstraZeneca. Such mega-mergers rarely manage to create the kind of new shareholder value that they initially promise. But the acquisition will likely create a new area of strength for the company in the highly profitable rare diseases space, and AstraZeneca says that Alexion’s cash flow will enable it to increase its R&D spending.
But for all of this analysis, my sentiment that AstraZeneca is a good long-term investment comes down so a fairly simple calculus: that the company already occupies a strong position and is doing some truly ground-breaking things which, in better times, would illicit a lot more excitement from the investment community. At today’s price of 7,334p, I believe there is approximately 40% of upside if shares in AstraZeneca simply return to their 52-week high of 10,120p, and in terms of risk, the company is about as blue chip as things can get.
There will be other stocks that might appear to offer a better yield or equity growth over the next few years, but I cannot think of many stocks that can rival AstraZeneca right now in being able to offer so much upside investment potential for such a low level of risk.
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Tej Kohli owns shares in AstraZeneca and Moderna. The Motley Fool UK has no position in any of the shares mentioned. 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.
Tej Kohli is the founder of the philanthropic Tej Kohli Foundation whose ‘Rebuilding You’ philosophy supports the development of scientific and technological solutions to major global health challenges, whilst also making direct interventions to rebuild individuals and communities around the world. Tej Kohli is also an investor who backs growth-stage artificial intelligence and robotics ventures through the Kohli Ventures investment vehicle.