Businessman planning and analyst investment marketing data.
At 11,016 pence, the AstraZeneca (LSE:AZN) share price has risen just over 12% this year. But the road has been bumpy. However, the news on October 3 may help push the stock higher in the long term.
The chart shows a narrow sideways price range over the past year. And that can be a good thing if it allows a company’s underlying operating progress to catch up with its valuation.
Earnings growth ahead
City analysts are optimistic about the pharmaceutical business’s potential to boost profits. Since the research and development (R&D) project came to life a few years ago, profits have been increasing.
AstraZeneca has shown that R&D can drive growth when it clicks. And the pipeline has been spitting out new drugs that sell well for some time.
Looking ahead, analysts expect normalized earnings to grow nearly 90% this year and about 16% in 2024; There is no doubt that AstraZeneca is holding on to its growth magic.
But litigation can be a reality for many large companies. And there have been many claims against the company over the years, costing money and distracting management.
However, there was good news for shareholders. The directors announced the agreement of Nexium and Prilosec Product liability litigation.
These medications are used to treat acid-related symptoms and diseases, such as heartburn and stomach ulcers. And they act by inhibiting the production of acid in the stomach.
But these proton pump inhibitors (PPIs) have been linked to kidney failure, liver damage, and bone problems. And legal claims in the United States allege that drug companies knew of potential side effects before making them.
About 18,600 PPI lawsuits had been filed against manufacturers of Nexium, Prilosec, prevacancy, Protonixand dexilant for causing various health damages.
Eliminating uncertainty
But these claims do not only affect AstraZeneca. Other companies affected include Supervisor and bet, Pfizer and Takeda Pharmaceuticals.
In the recent announcement, AstraZeneca said it had entered into settlement agreements that effectively resolve the majority of product liability claims currently pending regarding PPIs. However, the specific terms of the agreements are confidential.
The directors believe the claims are unfounded and do not admit any wrongdoing in the settlement agreement. But the agreements avoid costly ongoing litigation and allow the company “advance its purpose of delivering life-changing medicines to millions of patients around the world”.
The deals cost a whopping $425 million. And that’s a lot of money, but at least it eliminates the uncertainty.
I don’t think this announcement will catalyze the stock price much in the short term. And that’s because it’s worth just over 3.7% of expected 2023 net profit, so it’s a relatively minor expense.
Perhaps the biggest risk to shareholders is that the R&D portfolio will dry up at some point. However, the recent announcement is positive and is another small reason to delve into AstraZeneca with deeper research.
I think the stock could do well in a long-term diversified portfolio.
