Does AstraZeneca PLC Stock Offer a Golden Opportunity in 2015?

By Markets Fool.com

AstraZeneca PLC was supposed to get absolutely crushed by the loss of patent protection for key products like its acid reflux medication Nexium. Unlike its patent cliff peers, though, AstraZeneca was able togrow its revenue by 4% in the first nine months of last year, easily beating its own dire forecasts of plummeting revenues at the start of 2014.

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Although core EPS (down 8% in the third quarter compared with 2013) and profitability (down 13%) have taken a steep hit in the wake of the company's ongoing patent struggles, AstraZeneca has benefited greatly from the strong launch of its diabetes drug Farxiga, double-digit sales growth for the respiratory medicine Symbicort, and generally strong growth for most products in emerging markets.

Management's ability to safely navigate the murky patent cliff waters, at least in part, subsequently led to a market-beating year in 2014.

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This top pharmaceutical company's best days, though, may still lie ahead. Heading into 2015 and beyond, management has laid out an aggressive plan to generate growth through new products. Here's what investors need to know.

Revenues may stagnate, but AstraZeneca is creating deep value for shareholders
As additional products such as Crestor come off patent protection in the next two years, AstraZeneca may struggle to post much in the way of top-line growth. Management has already informed investors that revenues are expected to flatline until 2017 because of the combination of former top-selling products losing patent protection and the fact that most of its more valuable clinical candidates won't be up for regulatory review until late 2015 and 2016.

Nevertheless, management believes that its robust clinical pipeline can increase product sales by approximately 70% from current levels, to reach $45 billion in 2023. If this line holds true, it would represent an annualized growth rate, in terms of revenue, of about 8.75%.

Most of this revenue growth is expected to come from three core therapeutic areas going forward: cardiovascular/metabolic disorders, oncology, and respiratory/inflammatory diseases. That said, AstraZeneca is actively developing opportunity-driven products in the fields of neuroscience, as well as infectious diseases.

Immuno-oncology products will be key to Astra's future growth
Pfizer's reported interest in AstraZeneca's immuno-oncology pipeline is well deserved and is expected to be the main driver of growth for the company in years to come. What sets AstraZeneca's immuno-oncology platform apart from its rivals is its diverse but highly integrated nature. Specifically, the company is targeting three broad areas within the immuno-oncology paradigm: antigen presentation, T-cell killing, and altering the tumor's micro-environment.

While these are somewhat disparate lines of research, it's important to understand that AstraZeneca is conducting clinical trials to examine a host of potential combination therapies (29 in total) that span these three therapeutic pathways. In this way, AstraZeneca hopes to provide a more comprehensive treatment regimen for cancer patients, thereby leading to more effective, long-term care.

This is undoubtedly a bold plan in light of how difficult most cancers are to treat over a patient's lifetime, but the early results are encouraging. An early-stage study looking at a combo of Medi4736, a programmed death-ligand 1, and Pfizer's human monoclonal antibody, tremelimumab, for example, reported some impressive results in terms of shrinking tumors in non-small-cell lung cancer patients. AstraZeneca believes this combination could one day become a best-in-class therapy for certain types of lung cancer patients, and there are many more like it in its unparalleled oncology pipeline.

Does AstraZeneca present a golden opportunity for investors right now?
On paper, Astra looks like a poor candidate for growth and market-beating gains. Its core EPS, for instance, is projected to fall another 5% this year.

That said, pharmaceutical companies probably shouldn't be strictly valued based on their operating cash flows or forward price-to-earnings ratios. And AstraZeneca is a prime example why.

The company's adept management team has put AstraZeneca on track to become a leader in the field of immuno-oncology, an area that is expected to see explosive growth over the next decade or so. Moreover, the vast size of its oncology pipeline should ensure that at least a handful of clinical candidates eventually become commercial products. In short, it's unlikely that all 29 ongoing or planned immune-focused cancer trials will flop.

On the downside, most of these drugs are in their early stages and therefore won't generate any revenue for the next few years. Meanwhile, AstraZeneca does offer patient investors a healthy dividend of 2.56% at current levels.

All told, this stock looks like the poster child for taking the long view. Namely, its better-than-average dividend yield, robust clinical pipeline, and top-notch management should richly reward shareholders at some point down the line, making it a compelling long-term investing vehicle.

The article Does AstraZeneca PLC Stock Offer a Golden Opportunity in 2015? originally appeared on Fool.com.

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.