Should Investing in AstraZeneca Shares Be Considered?
British pharmaceutical giant AstraZeneca (AZN, down by 0.39%) is making headlines, but not in a good light. Recent investigations by Chinese authorities led to the arrest of its president in China, Leon Wang, along with other top executives, sending shockwaves through the company. AstraZeneca anticipates a sales dip in China, one of its most significant international markets.
The drugmaker's woes in China have impacted its performance, resulting in a 3% decline in its stock price year-to-date. Amidst all this, should one consider investing in AstraZeneca?
Analyzing AstraZeneca's financial performance
AstraZeneca's shares performed well for the majority of the year. This can be attributed to the company's robust financial results. Revenue grew by 18% year-over-year to reach $13.6 billion in the third quarter. The adjusted earnings per share were $2.08, a 20% increase compared to the previous year. AstraZeneca's oncology business, its most vital segment, contributed $5.6 billion in sales during the third quarter, a 19% increase compared to the previous quarter.
However, it wasn't only this segment that saw growth. All of AstraZeneca's business segments posted impressive revenue growth during the quarter. The least impressive growth was in the rare diseases segment, where sales increased by 9% year-over-year to reach $2.1 billion. Investors, though, were mainly focused on AstraZeneca's results in China. The company's revenue in China was $1.7 billion, a 15% increase compared to Q3 2023.
The company addressed the investigation into its executives in China in its third-quarter earnings release. They stated that they took this matter seriously and were prepared to cooperate with the authorities if necessary. However, this news may not be comforting to long-term investors, who may view this as a significant risk for the pharmaceutical company.
Diversifying into weight-loss therapies
Despite these challenges, it's worth noting that AstraZeneca is not just delivering strong results. It also has several promising pipeline candidates, including in the fast-growing field of weight-loss therapies. They have at least three candidates in this area. One of these is AZD5004, a potential oral GLP-1 medicine. Currently approved GLP-1 therapies are administered via injection once a week; an oral formulation would attract patients who dislike needles.
In a phase 1 study, AZD5004 resulted in an average weight loss of 5.8% in patients over 30 days. AstraZeneca has initiated phase 2 clinical trials for this candidate.
The company's other two investigational anti-obesity medicines are also making progress. It's important to note, though, that many drugmakers are developing oral GLP-1 medications or weight-loss drugs of other types. AstraZeneca still has a long way to go before its candidates are approved, if they are approved at all.
Its future prospects, however, are not solely dependent on its weight loss pipeline. AstraZeneca has nearly 200 ongoing programs, including 21 brand-new clinical compounds in its late-stage pipeline.
Is it worth the risk?
In May, AstraZeneca set a target of $80 billion in revenue by 2030. Annual sales last year stood at $45.8 billion; if AstraZeneca can reach its 2030 goal, its revenue will experience significant growth throughout the decade.
However, AstraZeneca's master plan now faces uncertainty due to the situation in China. Without this issue, AstraZeneca's stock would appear attractive. So, what should investors do?
Given the uncertainties introduced by the China probe, AstraZeneca could be a good investment at its current price level if it can resolve this issue. If you have a high risk tolerance, you might want to consider starting a small position in the stock. This could potentially be a profitable move if AstraZeneca manages to overcome this obstacle.
In light of AstraZeneca's financial performance, the company's robust earnings and revenue growth despite challenges in China make it an attractive investment option for some. However, the ongoing investigation into its executives in China adds a layer of uncertainty and potential risk for long-term investors, requiring careful consideration before investing money or capital.
Furthermore, AstraZeneca's promising pipeline in the weight-loss therapies, specifically AZD5004, provides an opportunity for future growth. If approved, an oral GLP-1 medicine could attract a large market share of patients disliking needles. However, competition in this field is fierce, making AstraZeneca's success largely dependent on the approval process and market demand.
In conclusion, while AstraZeneca's strong financial performance and weight-loss pipeline offer attractive prospects, the ongoing investigation in China adds uncertainties and potential risks that should be assessed and considered before investing in the company.
