Investing lessons from AstraZeneca

Daniel Lane

Daniel Lane - Fidelity Personal Investing

Product sales for 2018 hit $21 billion at pharma giant AstraZeneca, as a host of new drugs helped overcome an extended period of patent expiries and more recent industry fears of a no-deal Brexit.

Over the past few years the FTSE 100 firm has been dealing with the loss of exclusivity of some of its headline drugs like schizophrenia treatment Seroquel, so today’s news of a 4% rise in product sales will come as a welcome reprieve to investors in the pharma stalwart.

Investing lessons from AstraZeneca

Chief executive Pascal Soriot referenced the particularly strong performance of the firm’s Emerging Markets division, as Chinese sales rose by 28% to $3.8 billion.

Soriot is in the middle of simplifying the company’s research and development structure as well as encouraging better collaboration with its commercial operations in a bid to accelerate the launch of new medicines. Today’s update might bring the first signs of life after a while in the pharma wilderness but investors will be looking to see if Soriot’s overall strategy produces strong enough growth to hit the boss’s goal of $40 billion annual revenues by 2023.

Diversifying drugs

The delicate balance between product launches, patent expiries and commercial execution is one investors in the space know all too well. As soon as a firm’s exclusive treatment or medicine gets the go-ahead it’s a race to commercialise it as fully as possible before the generic versions hit the shelves and the proprietary advantage is lost.

If the research and development in the background isn’t churning out a suite of drugs to replace the fading stars, investors can end up in no man’s land, waiting for drug trials to produce the next winner. This is where AstraZeneca has found itself over the past few years.

While they have well over a hundred projects in the pipeline, all going through various stages of the dreaded trials process, there are bound to be some let-downs and, of course, until they come good, there’s no return on all those millions spent on development. The Cambridge-based company will hope their newcomers, including popular cancer treatments Tagrisso and Lynparza, are sustainable enough to right the balance again.

For big pharma, it’s a case of diversifying drug development wide enough so there’s hopefully at least one engine firing at any one time. Updates like today’s really underline the need for investors to follow suit and be diversified from the ground-up.

Whether it’s a biotech company pinning their hopes on a drug trial or an investor trying to second guess market reactions to Brexit negotiations, the past few years have shown us that putting all those eggs in the same basket is rarely a solid strategy.

Diversification, like drug development, should be taken care of long before it’s even a topic of conversation. Uncorrelated assets ticking along in the background give investors the opportunity to ride out the bumps, with some holdings picking up the slack for the others and swapping fortunes from time to time.

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