AstraZeneca's prognosis is a tonic for shareholders
Readers of this column, cursed with a good memory, will know that we have an inordinate fondness for big pharma on this page. Today we are analysing the giant AstraZeneca corporation.
Three years ago Astra saw off a controversial bid by its US rival Pfizer. The bid and its rejection left a legacy which had an impact on both sides of the Atlantic.
The British fretted about the loss of a global life-sciences giant. The US authorities were unhappy that Pfizer was trying to escape its tax net. Sweden then got in on the act when the powerful Wallenberg family rowed in for Astra and it ended up a win for Europe.
Today, the Anglo-Swedish company is the second-largest drug concern in the UK, with its shares quoted in sterling on the London Stock Exchange, but it reports in dollars. It operates in more than 100 countries, with 59,700 employees - of whom almost 9,000 are in R&D - and has a market cap of £65bn (€74bn).
To date, the company's focus has been on oncology, cardiovascular and respiratory medicines. Its stated priority is to make up ground in the field of immunology.
Readers may need to remind themselves that AstraZeneca's origins date back to the mid-1920s.
Following a merger between British Dye Stuffs, Brummer Mond and Nobel Explosives, one of the great industrial corporations of post-war Britain, Imperial Chemical Industries, was formed. If ever there was a superstar of the business world, ICI was it. In the 1950s and '60s, it managed to invent everything worth inventing in this part of the world (and was chaired for a long time by Paul Chambers, one of the inventors of the PAYE system, no less).
Zeneca was spun off by ICI while it was fighting off an unwelcome bid in the early 1990s and subsequently merged with the Swedish business equivalent, Astra.
There is no denying that the company has been through challenging times.
At the time of the bid from Pfizer, Astra's pipeline was not significant and the patent cliff loomed for several of its blockbusters drugs.
However, since the failed bid, management has been galvanized into action.
It has revitalised its R&D and expanded its pipeline of medicines by acquisitions. Recently, the CEO, Pascal Soriat, stated: "Three years ago, the company had money but not enough projects, today it has lots of projects but not enough money to fund them all."
Today it has lots of promising medicines. These include a compound that has been effective for breast and ovarian cancers.
It has developed a multi-billion-dollar prospect for lung cancer, an asthma drug and a diabetic medicine for type-two sufferers.
Analysts are of the opinion that the company's pipeline of drugs could add $10bn to its sales. Soriat believes that the company's sales could reach $45bn by 2023.
Analysts were sceptical but its recent good results have changed that.
Financial results were in line with expectations. Revenues were down 7pc to $23bn. Sales declined by 10pc but were cushioned by revenues of $1.7bn from licensing, both of its existing drugs and clinical trials.
Operating profits showed a surprising jump of one fifth to $4.9bn but are still a long way off the $13bn in 2010. The group's shares trade at £51, up 30pc on the year.
Investors are extremely chuffed to see a 24pc improvement in earnings per share, which is now almost treble that of three years ago.
They are also pleased that in spite of difficult years, it continued to pay a consistent dividend.
A source of relief is the pipeline of medicines replacing some of the fast-expiring blockbusters.
AstraZeneca is a defensive stock not unlike gold and utilities and useful in a downturn. I think it could be a better bet than sovereigns in the bank vault.
Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned