(Bloomberg) -- A revival in AstraZeneca Plc shares faces a key test this week, with more likely to hinge on the drugmaker’s ability to address concerns over its business in China than on its earnings report alone.
The drugmaker’s shares lost more than a quarter of their value in a roughly two-month period last year, amid a Chinese probe into alleged illegal imports of the firm’s cancer drugs and data privacy breaches. Since then, the stock has risen more than 15%, outperforming European pharmaceutical peers.
Analysts say the China concerns could detract attention from an otherwise strong drugs pipeline — including treatments for breast cancer, hypertension and asthma — when the company reports this week.
“Investors are aware of the strong catalyst outlook for the year yet cannot get excited by it while questions on the ongoing China investigations remain unanswered,” Berenberg analyst Luisa Hector said. The company’s revenue guidance for 2025 “should reveal management’s levels of concern around the impact of the investigations on the China business,” she said.
The Chinese probe comes on top of another, separate investigation into the company’s China arm for medical insurance fraud, which has already resulted in 100 ex-AstraZeneca employees being sentenced. AstraZeneca has said these are all individual criminal cases and that the company has not been questioned.
AstraZeneca Chief Financial Officer Aradhana Sarin sought to provide reassurance at a conference last month. While the company expects some negative revenue impact from China, Sarin said AstraZeneca is even more confident it will meet its forecast for $80 billion in 2030 revenue due to recent and anticipated drug approvals.
For now, the optimism isn’t reflected in the drugmaker’s valuation. The shares trade at about 15 times estimated earnings, making it roughly 10% cheaper than the Stoxx 600 Health Care Index and more than 15% below its own average valuation over the past decade.
“The valuation implies that AstraZeneca’s industry-leading pipeline comes for free,” Berenberg’s Hector said. “Our analysis indicates that this low share price could be an attractive entry point for investors.”
At its peak in September, AstraZeneca’s market value exceeded £200 billion after a big bet on cancer drugs helped drive a rally in the shares. But in the months that followed, the stock suffered from mixed results for an experimental lung cancer drug with Japanese partner Daiichi Sankyo Co. as well as the probes in China.
The issues in the Asian nation are a blemish on the tenure of Chief Executive Officer Pascal Soriot, who has been at the helm of the British drugmaker since 2012, winning plaudits for boosting the stock price in the wake of Pfizer Inc.’s failed 2014 takeover attempt.
Still, Barclays Plc analyst Emily Field sees the China investigation being resolved sometime this year and is staying positive on AstraZeneca’s prospects. Among analysts tracked by Bloomberg, 25 have a buy rating or equivalent on the stock, 6 have a hold recommendation while none say sell. The average analyst price target suggests the shares could rise roughly 20% over the next 12 months.
For Tom O’Hara, a European equities portfolio manager at Janus Henderson Investors, the stock market jitters around the China investigations have been “overdone” relative to the real economic impact.
“It’s one of those narratives that just sits on a stock for a prolonged period of time,” he said. “But eventually the market goes, ‘I’m bored, I’m over that now. The business is good, it’s an innovative company, the pipeline’s good — let’s focus on that.’”