AstraZeneca plc goes ‘nuclear’ on R&D spend to double sales

Pharmaceuticals giant AstraZeneca plc (LON: AZN) could transform itself with an ambitious development drive.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shrinking pharmaceutical giant AstraZeneca’s (LSE: AZN) chief executive Pascal Soriot is on record as saying he had no choice but to overhaul the company when he took over in October 2012 because “the company was imploding” due to the number of patents expiring around the same time.

The truth of that statement is plain to see — revenue and earnings fell just about every year since 2012 and look set to continue falling during 2016 and 2017. Between 2011 and 2017, City analysts expect around $17bn to have been lost from annual sales.

Ambitious turnaround plan

However, Mr Soriot is cutting deep into AstraZeneca’s culture, its bloated workforce, and the firm’s economics in the belief that such radical surgery will transform the company into a speciality drugs supplier focused on treatments for cancer, respiratory and cardiovascular diseases, and similar areas that have potential to drive future sales. That’s in contrast to the mass-market approach that fuelled AstraZeneca’s previous ascendancy, but which is now losing its wheels.

Should you invest £1,000 in AstraZeneca right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if AstraZeneca made the list?

See the 6 stocks

Thousands of redundancies over the last three years precede more to come — painful but necessary, and an indication of how the firm is bearing down on selling, general and administrative costs. Meanwhile, research and development (R&D) spend runs at around 24% of sales, which is a figure that exceeds the industry average. Spending on R&D can be a good forward indicator for investors. A sustained programme of R&D investment often creates real value that could pay dividends down the line.

Targeting talent

The bold centrepiece of Mr Pascal’s master plan for AstraZeneca is the new $500m corporate headquarters and research hub the firm is building near Cambridge. It aims to attract top brains from Britain’s best university labs to enable ground-up research to drive AstraZeneca’s forward growth. That kind of initiative seems to be what many have been crying out for — it’s just what Britain and AstraZeneca need to help commercialise the country’s raw talent. This move could prove to be a masterstroke that powers the company’s comeback.

The firm has already shifted around a quarter of its UK workforce into rented accommodation around Cambridge to work closely with academic researchers. Mr Soriot thinks his game plan has great potential and said two years ago that he expected sales to rise to $45bn by 2023. That would be a more-than-90% increase over the $23.6bn the firm achieved during 2015 and would work wonders for the company’s share price.

AstraZeneca has gone ‘nuclear’ on R&D which, along with a lively bolt-on acquisition programme, seems set to rejuvenate the firm’s product pipeline. AstraZeneca oozes potential right now, and investors can hop aboard for a forward price-to-earnings rating of just over 14 at today’s 3,876p share price. That strikes me as a reasonable price, and there’s a 5% forward dividend yield to keep us warm while we wait.                                                               

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

£10,000 invested in Nvidia stock in 2020 would now be worth £244k! Here’s what could be next

Nvidia stock’s dominated the ‘picks and shovels’ market for artificial intelligence, but Dr James Fox believes it could be primed…

Read more »

Investing Articles

Next shares: the best FTSE 100 stock money can buy?

Next shares have performed brilliantly in recent years. Today's numbers suggest this momentum could continue into 2025, thinks Paul Summers.

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

£50k invested in NatWest shares one year ago would be worth this much today

NatWest shares soared in 2024 as interest rates remained high. Ken Hall considers if there is more cause for optimism…

Read more »

Investing Articles

ChatGPT thinks these are best UK shares to consider buying right now

Which five UK shares does ChatGPT think might be worthy of investment in 2025? Paul Summers reckons one pick might…

Read more »

Investing Articles

3 FTSE 100 stocks that could be takeover targets in 2025

Edward Sheldon believes these three FTSE businesses could be of interest to larger companies in their respective industries.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Dividend Shares

Why is FTSE 100 stock Unilever tanking?

Since 9 September, FTSE 100 stock Unilever’s fallen more than 10%. Here, Edward Sheldon looks at what’s driving the share…

Read more »

Investing Articles

Should I quit my day job and use AI to predict the stock market?

This Fool put various AI models to the test, checking their stock market prediction skills. The results however were questionable.

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how investors could try to turn that into £1,430 a month of passive income

Very high passive income can be made over time from smaller initial investments in high-yielding stocks, especially if dividend compounding…

Read more »