PHARMACEUTICALS

AstraZeneca’s Prescription For Growth Includes Cancer Treatments, Weight Loss Drugs, and a New $80B Sales Target

Savior of lives, pioneer of solutions, and an alchemist that conjures up profits — AstraZeneca ($AZN) is an icon, a legend, and the moment in the pharmaceutical industry. Britain’s most valuable company is on a mission to nearly double its revenues to $80B by 2030, but getting there won’t be easy.

Astral (revenue) projections: AstraZeneca’s stock keeps reaching new all-time highs, achieving over 100% growth in the past five years (with total returns even higher when factoring in its 3% dividend yield) — outpacing the S&P 500’s 88% return. AstraZeneca has recorded five consecutive years of revenue growth, fueled by successful drugs like Farxiga for diabetes and Tagrisso for cancer treatment. But reaching their new target hinges on the success of upcoming key late-stage trials expected to generate $20B in revenue by 2030.

• AstraZeneca anticipates that 12 of the 20 new launches could each exceed $5B in peak-year revenues.

• Five are new cancer drugs (AstraZeneca’s largest business), while the others focus on hormone and cell therapy innovations.

AstraZeneca’s Health Quest

AstraZeneca remains competitive due to strong research and development investments, a diversified product portfolio, and deep pockets. In recent years, the company has invested billions into large acquisitions and partnerships — with little signs of slowing.

• Looking to make weight loss drugs cheaper and more accessible, AstraZeneca paid $2B to license an experimental weight loss pill.

• AstraZeneca is also trying to stay ahead of the innovation curve — by acquiring Fusion Pharmaceuticals for $2.4B, which is developing cancer treatments using radiopharma, another rapidly growing area of medicine.

Trouble in pharmaland: Regulatory pressures and geopolitical tensions risk putting a stop to AstraZeneca’s plans. A US federal court ruling now mandates pharmaceutical companies negotiate drug prices with Medicare — potentially slashing profits by 25-60%. The company is also developing a separate supply chain in China, hoping that Chinese drug sales will help achieve its revenue target and ease US-China tensions. Fortunately for investors, AstraZeneca reached its $45B revenue target last year — a goal initially set in 2014. Now, it’ll need to do it all over again.

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LARGECAP RECAP

📉 Inflation Stays Steady in May 2024, Core Inflation Drops to Three-Year Low

The Federal Reserve has successfully reduced inflation from over 9%, but nobody told them that the last mile would be so difficult. In recent months, “hot” inflation reports have kept Wall Street anxious about potential interest rate adjustments from its current 5.25-5.5%. However, Wednesday’s May Consumer Price Index (CPI) report finally showed some encouraging signs.

• CPI inflation remained essentially unchanged year-over-year (YoY) at 3.3% — driven by slower price increases in food (+2.1%) and gasoline (+2.1%).

• Core inflation, which excludes food and energy prices, rose just 3.4% YoY — its lowest level since Apr. 2021.

Window of opportunity: Despite inflation still exceeding the Fed’s 2% target, investors welcomed the May data as progress, especially after disappointing reports that had tempered expectations for interest rate cuts this year. Analysts initially forecasted up to six rate cuts by 2024’s end — but the Fed now anticipates only one. Nonetheless, investors pushed the S&P 500 to new highs on the developments, with the index rising 1% on Wednesday.

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Markets & Economy

GameStop ($GME) raises $2.14B amid investor losses: Roaring Kitty bailed the gaming and entertainment retailer from irrelevance, leveraging its retail investor popularity to raise over $3B in new funding over the past month via share sales — mostly at their expense. [Read]

Paramount ($PARA) walks, sparks new sale talks: The entertainment giant’s largest shareholder and chair, Shari Redstone, ended months-long talks with Skydance on Tuesday. The move shocked investors and executives — and guaranteed a new bidding war. [Read]

General Motors ($GM) cuts EV sales forecast: A day after announcing a $6B share buyback, the US auto company lowered its electric vehicle sales forecast, citing “slower than expected demand.” They now expect 200K-250K EVs to ship this year, down from 200K-300K. [Read]

Business & Wealth

Every new feature in Apple’s ($AAPL) software: From satellite texting to an AI-powered Siri, Apple unveiled dozens of new features for its iPhone, iPad, and Mac at its annual developer conference. [Read]

Biden aims to strike medical debt from credit reports: In Apr. 2023, all three major US credit bureaus removed medical debts under $500. Now, President Biden is coming to take it a step further — moving to exclude all medical debts from credit reports. [Read]

X to hide likes: Elon Musk’s social media platform will now hide users’ likes by default. Musk stated it’s “important to allow people to like posts without getting attacked.” Before today, hiding likes was a paid feature. [Read]

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DIGIT OF THE DAY

Nvidia’s Overwhelming 34.5% Contribution to S&P 500 Returns Is a Sign of Wall Street’s Growing Diversification Problem

Ever felt like the stock market has its own cool kids’ club? Well, it kind of does, and Nvidia ($NVDA) sits at the head of the S&P 500 table, responsible for 34.5% of the index’s market cap increase this year. This lack of diversification poses significant risks for the entire index if Nvidia falters.

• Currently, the S&P 500’s top 10 stocks command 33% of its total market value, exceeding the 27% from the 2000 tech bubble.

• In the past five years, the S&P 500’s annual total return has hit 16% — with one-third of this growth driven by the top 10 stocks.

No love for diversification: For years, experts have advised diversifying investments to reduce risk. Yet, out of 372 asset-allocation funds (fancy term for diversified investment funds) tracked by Morningstar, only the PIMCO StocksPLUS Long Duration Fund ($PSLDX) has outperformed the S&P 500 since 2009. This trend of underperformance is causing investors to shift their focus toward large-cap stocks. While diversification might still have a place in the future of investing, it’s currently on a losing streak.