To appreciate where AstraZeneca is in 2019, it's useful to rewind to 2012, the year Pascal Soriot took over as CEO.
At that time, the U.K.-based pharma was a company firmly dependent on drugs in gastrointestinal, neuroscience, respiratory and cardiovascular medicine, many of which faced shrinking sales.
In 2019, its oncology business led by Tagrisso, Imfinzi and Lynparza is close to matching the sales of its mighty cholesterol-lowering statin pill Crestor at its peak — more than $6 billion.
This year, five of AstraZeneca's seven blockbusters are growing, while in 2012 five of its seven were in retreat, taking $4.4 billion from its top line. The company can now confidently point to growing sales, with revenue $2.2 billion greater over the first nine months of the year versus the same period in 2018.
The company's performance has won it new supporters on Wall Street.
Wolfe Research analyst Tim Anderson describes AstraZeneca as "the best long-term grower" among its pharma peers, forecasting revenue growth to be "durable through 2028. "And SVB Leerink analyst Andrew Berens, who initiated coverage of the UK pharma in late November, now sees AstraZeneca as one of the stronger cancer drugmakers.
These may be the reasons why AstraZeneca's valuation rose by 30% this year while big pharma, on average, advanced 6%, and why Soriot become only one of two biopharma executives to make the Harvard Business Review's list of the 100 best CEOs in the world.
Some other reasons: oncology, pipeline and portfolio focus, and China.
Lung cancer drug Tagrisso has established itself in 2019 as AstraZeneca's biggest seller, overtaking Symbicort earlier this year. While Tagrisso sales are still very much behind Crestor at its peak, the drug has the advantage of being the preferred drug in a targeted lung cancer indication, requiring far less sales and marketing resources than did Crestor, which went up against Pfizer's Lipitor in a fought-over, massive heart disease setting.
Lynparza, meanwhile, has emerged as the best in its drug class for treating conditions like ovarian and breast cancer. AstraZeneca shelved the drug after a clinical failure in 2011, but then undertook a risky resuscitation that soon paid off. Lynparza was recently the focus of a collaboration with Merck & Co. that netted AstraZeneca $1.6 billion upfront last year.
"We see this segment of the business growing at an annual rate of over 10% through 2028," Berens wrote in his Nov. 22 initiation note.
AstraZeneca has now trimmed its commercial and R&D operations primarily to just three major areas: oncology, respiratory and the often interconnected cardiovascular, renal and metabolic diseases. Even within that, the pipeline is skewed toward cancer, which accounts for 97 of 164 clinical research projects.
Compared to the rest of large pharma, AstraZeneca can boast a top-three pipeline by both number of drug candidates and therapies recently filed with regulators, according to a count compiled by investment bank Cowen. Its forecasted growth over the 2018 to 2024 period, meanwhile, leads all of pharma.
Focusing its portfolio did require some pain.
In a move some akin to "selling the family silver," AstraZeneca sold off rights to once-prized brands like Seroquel and Nexium to raise funds to focus on those with bigger growth potential. Anderson writes that this aspect of the strategy could give the impression that it is "cooking the books," but was probably a necessary step to unburden itself of declining products.
This strategy also required that investors tolerate years of declining revenue while putting their faith in Soriot's promise to "return to growth." That inflection point came in 2018, when the company registered its first year of revenue growth in three years.
"We have been in sales decline longer than I have been at AstraZeneca," Soriot said earlier this year as the company outlined its 2018 results. "For the first time we're now back to growth. We expect a period of sustainable growth ahead of us."
The final piece of the puzzle is China, where Wolfe's Anderson says its presence is "greater than any of our other companies." While large biopharmas like Amgen and Celgene have partnered with Chinese biotech BeiGene to access the China market, AstraZeneca has its own commercial and research operation, and has expanded the latter with an eye toward collaboration with local companies.
Sales in China reached $3.7 billion in the first nine months of 2019, constituting 61% of its emerging markets sales and 21% of total sales, and growing by more than a third over the same period in 2018.
If there is a knock on AstraZeneca, it is that sales are well below the $33 billion earned in 2010. And there is the lingering question over whether the company can achieve $40 billion in annual sales by 2023, a target promised by Soriot while fending off a takeover bid from Pfizer in 2014. Anderson forecasts a more modest $34 billion and Cowen, $37 billion.
That $40 billion promise was built on the assumption that its three oncology powerhouses would be successful at a time when there was still a significant chance of clinical failure. Many of the gambles have paid off, although the lofty forecasts made at that time for Imfinzi, which is competing for share in a hard-fought oncology drug class, and slow-growing Brilinta look only slightly more achievable today than they did five years ago.
Overpromising is a habit that can lead to shareholder dissatisfaction and executive purges, but that's an issue that won't be confronted at least for a couple more years. Right now, AstraZeneca is on a roll, and investors seem to want in.
