Morning Note: Market news and an update from AstraZeneca.

Market News

Geopolitical tension has risen – President Trump has ramped up pressure on Iran with fresh Houthi threats, while Israel launched military strikes on Hamas targets in Gaza, shattering almost two months of a shaky ceasefire. Trump’s call with Putin today is sparking concern he may sacrifice Kyiv’s interests in negotiating a ceasefire. Gold remains a beneficiary of the uncertainty, hitting a new high of $3,025 an ounce, although the weak Dollar means highs are not being set in other currencies such as Sterling.

The Federal Reserve is expected to hold its benchmark interest rate steady in the 4.25%-4.50% range at the end of its two-day policy meeting on Wednesday.

US equities nudged higher last night – S&P 500 (+0.6%); Nasdaq (+0.3%). Alphabet is in fresh talks to buy cyber-security form Wiz for $30bn, in a move that could help Google catch up with Microsoft and Amazon.com in the cloud-computing market.

Shares in Asia were buoyed this morning – Nikkei 225 (+1.2%); Hang Seng (+2.5%); Shanghai Composite (+0.1%) – in an extension of a recent shift toward non-US assets BYD rose by 6% to a record level after the launch of an EV battery system that can travel 400km on 5-minute charge and has maximum charge rate of 1000kw.

The FTSE 100 is currently 0.3% higher at 8,702, while Sterling trades at $1.2980 and €1.1880. The UK and EU are having advanced talks on seizing frozen Russian assets. Brent Crude moved up to $71.30 a barrel. China hasn’t imported US LNG for 40 days, the longest gap since June 2023, as traders divert shipments to Europe to avoid Beijing’s tariffs. Buyers are looking to procure supply from Asia-Pacific or the Middle East instead.

Source: Bloomberg

Company News

Over recent weeks AstraZeneca has announced a number of positive R&D updates, as well as the acquisition of biotechnology company EsoBiotec. This follows the release of a strong set of 2024 full-year results and a reassuring update on the allegations against the company in China. As a result, the shares have performed well so far this year and extended their long term out-performance.

AstraZeneca (AZ) is a global, science-led biopharmaceutical company. The main growth driver has been the group’s key Oncology franchises (including Tagrisso, Lynparza, Enhertu, Imfinzi, and Calquence), which have been supplemented by the other growth platforms of Respiratory & Immunology (R&I), Cardiovascular, Renal, & Metabolic diseases (CVRM), and Vaccines & Immune Therapies (V&I). Following the $39bn acquisition of Alexion in 2021, the company also has a strong platform in rare diseases, demand for which is forecast to grow by a low double-digit percentage.

AZ currently invests more than 20% of sales in R&D and uses partnerships to gain access to innovative technology. The group has an attractive pipeline of potential new products, the success or failure of which will drive future profitability and the share price.

The group’s ambition is to deliver $80bn of revenue by 2030, up 8.3% p.a. from a 2023 base of $45.8bn. This will be driven by growth in its existing portfolio through geographic expansion and follow-on indications, as well as new products currently in late-stage development, offset by the loss of patent exclusivity in some existing products. The group expects to launch 20 new medicines before the end of the decade, with some products having the potential to generate more than $5bn in peak year revenue. Beyond 2030, the company will seek to drive sustained growth by continuing to invest in transformative new technologies and platforms that will shape the future of medicine. The aim is to generate a mid-30s core operating margin by 2026, versus 32% in 2023. Beyond 2026, the margin will be influenced by portfolio evolution and the company will target at least the mid-30s percentage range.

In 2024, the company delivered nine positive high value Phase III studies, while in 2025, it was expecting the first Phase III data for seven new medicines, along with several important new indication opportunities for existing medicines. News flow over recent weeks has been positive:

• At the end of February, Enhertu was recommended for approval in the EU by CHMP for patients with HER2-low or HER2-ultralow metastatic breast cancer following at least one endocrine therapy. The decision was based on the DESTINY-Breast06 Phase III trial results which showed Enhertu demonstrated superiority versus chemotherapy with a median progression-free survival of more than one year.

• Camizestrant demonstrated highly statistically significant and clinically meaningful improvement in progression-free survival in 1st-line advanced HR-positive breast cancer with an emergent ESR1 tumour mutation in SERENA-6 Phase III trial. The positive high-level results were from a planned interim analysis of the trial.

• Yesterday, Imfinzi was approved in the EU as first and only immunotherapy for limited-stage small cell lung cancer. The approval was based on ADRIATIC Phase III trial results which showed a 27% reduction in the risk of death versus placebo. The product is already approved in the US and several other countries in this setting based on the ADRIATIC results and is under review in Japan.

• Earlier in the month, an Imfinzi-based regimen demonstrated statistically significant and clinically meaningful improvement in event-free survival in resectable early-stage gastric and gastroesophageal junction cancers.

• Yesterday, Eneboparatide met its primary endpoint of normalising serum calcium in adults with hypoparathyroidism at 24 weeks in CALYPSO Phase III trial. The trial will continue as planned to 52 weeks to further characterise the risk-benefit profile. The product is targetting a rare endocrine disease caused by a deficiency of PTH and characterised by impaired regulation of calcium and phosphate levels in the blood.

AZ has a robust balance sheet and generates strong free cash flow. At the end of 2024, net debt stood at $24.6bn, around 1x net debt to EBITDA. The company’s capital allocation priorities include investing in the business and pipeline. To that end, the company expects to increase capital expenditure by 50% in 2025, driven by manufacturing expansion projects and investment in IT systems, to support portfolio growth and build capacity for transformative technologies.

Yesterday the company entered into a definitive agreement to acquire EsoBiotec, a biotechnology company pioneering in vivo cell therapies that has demonstrated promising early clinical activity. The platform empowers the immune system to attack cancers and could offer many more patients access to transformative cell therapy treatments delivered in just minutes rather than the current process which takes weeks. AZ will acquire all outstanding equity of EsoBiotec for a total consideration of up to $1bn, including an initial payment of $425m on deal closing, and up to $575m in contingent consideration based on development and regulatory milestones. The transaction is expected to close in the second quarter of 2025 and does not impact AZ’s financial guidance for the year.

AZ is committed to a progressive dividend policy and intends to maintain or grow the payout each year. Underlining the company’s confidence in its performance and cash generation, the 2024 dividend was increased by 7% to $3.10, equating to a 2% yield at the current share price and exchange rate. For 2025, the company is guiding to a payout of $3.20, up only 3%.

For 2025, the company is guiding to total revenue growth in the high single-digits and Core EPS growth in the low double-digits, both at constant exchange rates. This implies material operating margin expansion. Note the weak dollar will have a negative impact on earnings.

We believe the outlook for the pharmaceutical sector remains mixed. Although it provides some protection against macroeconomic uncertainty and R&D productivity is expected to increase with the help of AI, concerns over drug pricing are likely to remain a headwind especially at a time when governments are looking for ways to reduce debt levels. However, with a pipeline of innovative and rare products to address unmet patient needs, that can justify higher pricing, we believe AZ is well placed to generate above average revenue and earnings growth. This has been reflected in the strong long-term performance of the shares.

Source: Bloomberg