Anglo-Swedish drugmaker AstraZeneca (AZN 0.28%) posted its fifth straight quarter of revenue growth when it reported third-quarter earnings last week. Astra's stock, in turn, has gained almost 10% over the past week, bringing its total gains (including dividends) for the year to a stately 33.4%.
Astra's dramatic turnaround has transformed its shares into the best-performing equity in the big pharma landscape over the past three years. The downside to this massive surge, though, is that the drugmaker's stock now also sports the highest valuation from a forward-looking price-to-earnings standpoint. Should investors take profits on this high-flying pharma stock, or does Astra have even more room to run? Let's break down the drugmaker's long-term outlook to find out.
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Where is Astra headed in the next decade?
To be upfront, Astra's long-term outlook is next to impossible to handicap. After all, the company currently has a whopping nine drugs on track to achieve blockbuster sales this year, it is undergoing a major product churn triggered by the loss of exclusivity for former stars like Crestor -- combined with an intentional pivot to oncology as a core growth driver, -- and its clinical pipeline is one of the most diverse and robust in the entire industry.
Complicating matters further, Astra has placed a heavy emphasis on emerging markets as a key area of growth. So far, that plan has come up aces with pharmaceutical sales in countries like China soaring in recent quarters, but there is always the strong possibility that these countries may experience an economic slowdown or turn inward for pharmaceutical innovation in the years ahead.
So what are Astra's most important pillars of growth? Apart from emerging markets as a whole, Astra's key growth drivers can arguably be lumped into a small handful of categories: a high-value lung cancer franchise consisting of Imfinzi and Tagrisso; an emerging cardiovascular disease franchise centering around the drugs Brilinta and Farxiga; and other key oncology medicines such as the PARP inhibitor Lynparza and the BTK inhibitor Calquence.
The nuts and bolts of the situation is that these are the core medicines/franchises that are most likely to determine the biopharma's long-term outlook. Astra's high-profile respiratory franchise, after all, should more or less hold its own against the competition in the next decade; while these medicines/franchises could all see their market share significantly expand -- or shrink, depending on several critical factors.
The bottom line is that there are far too many moving parts to arrive at a simple answer in regards to Astra's long-term growth profile. Wall Street is currently calling for Astra's top line to rise at a compound annual growth rate of 7.7% over the next five years, but the truth is that this revenue forecast could actually be wildly off the mark. If Imfinzi ends up becoming a viable competitive threat to Bristol-Myers Squibb's Opdivo or Merck's Keytruda in lung cancer, for instance, Astra's top line could easily grow at double-digit levels for the next five to six years straight. Unfortunately, there's just no way to churn out a truly reliable long-term revenue forecast for this company until all the clinical data is on the table, so to speak.
Verdict
Is Astra's stock worth its premium valuation in light of all this uncertainty? In a word, yes. The reason is that Astra has proven that its clinical pipeline can consistently produce blockbuster therapies -- even in highly competitive areas such as immuno-oncology and diabetes. So while investors definitely shouldn't put much stock in any long-term revenue projection for Astra at this point, this big pharma has more than enough irons in the fire to remain a top growth play for years to come.
