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A 14% pullback in the AstraZeneca (LSE: AZN) share price since April has resulted in Shell reclaiming its status as the FTSE 100‘s largest company. But it’s incredibly close. As I write on 12 September, AstraZeneca has a market cap of £165bn while the oil major’s value is slightly ahead at £167.2bn.
Is this dip an opportunity for me to invest in AstraZeneca shares? Let’s find out.
Why is the stock down?
The shares took a hit in late April when Brussels published a long-awaited draft of its proposed overhaul of laws governing the European Union’s pharmaceuticals industry. The EU wants to ensure all Europeans have access to both innovative new treatments and generic drugs.
One key proposal involves cutting the length of market exclusivity that drugmakers get before generics can enter the market. This currently stands at a decade, but the EU wants it reduced to eight years.
In July, the company also announced mixed results of a phase 3 trial for a new lung cancer drug (datopotamab deruxtecan), which it is developing in partnership with Japan’s Daiichi Sankyo.
This experimental antibody drug did delay disease progression compared to chemotherapy. However, it hasn’t yet led to a statistical improvement in survival versus standard chemotherapy.
Lastly, this week, there have been reports that chief executive Pascal Soriot plans to exit the company after 11 years in charge. According to the Mail on Sunday, he could leave as soon as next year.
Does this matter?
If approved, the EU’s reforms could certainly be a big deal, as they could impact the firm’s sales moving forward. However, there are a couple of things to note here. One is that it could take years to iron out the final details and implement the changes.
Second, the proposals do offer pharma companies an additional two years of protection if they launch their new medicines in all 27 member states within two years.
Regarding the mixed trial results, this is an ever-present risk when investing in pharma stocks. AstraZeneca is focusing on multiple hard-to-treat cancers, such as lung and pancreatic cancer, so the reality is there will be trial disappointments along the way that will knock the share price.
More worrying, I feel, would be the departure of the CEO. He has transformed the company into an industry pioneer and is positioning the company to succeed with heavy investments in artificial intelligence (AI) and mRNA technology. The firm hasn’t directly addressed this speculation yet.
A timely chance to buy?
In its latest Q2 results, the firm reported revenue of $11.4bn. It said that each of its non-Covid-19 therapy areas saw double-digit revenue growth, with eight medicines delivering more than $1bn across H1.
After this recent pullback, AstraZeneca stock has a forward-looking price-to-earnings (P/E) ratio of 17.8. That’s much lower than US-listed peers such as Eli Lilly, with a forward P/E of 56.
The stock also pays a dividend, with a current 2.2% yield. The payout is covered 2.3 times by earnings, so is incredibly well-supported.
Looking forward, AstraZeneca has one of the industry’s most diverse portfolios and pipelines across multiple diseases. Growth should continue for years.
Overall then, I think this pullback represents a buying opportunity, and is one I intend to take.
