Shareholders of pharmaceutical giant AstraZeneca (LSE: AZN) recently got some good news in the form of trial data presented at the annual meeting of the American Society of Clinical Oncology. They also have had to contend with the emergence of a new generic competitor to one of the company’s blockbuster drugs. What does this mean for the future of AstraZeneca, and should owners be excited or worried?
Positive trial results
AstraZeneca announced that its cancer treatment Lynparza (developed in collaboration with Merck) was shown to nearly double the time without disease progression in patients with advanced pancreatic cancer. The drug, which is already approved for the treatment of ovarian and breast cancers, showed no disease progression in 34% of patients after one year (versus 15% on a placebo) and in 22% of patients after two years (versus 10% on the placebo).
This represents a major breakthrough in the study and treatment of pancreatic cancer, which has historically been one of the most aggressive forms of the disease. Moreover, it is thought that its mechanism of action could be replicated in the treatment of other cancers caused by similar mutations.
Sales of Lynparza totalled £511m in 2018, representing an increase of 118%. This is a trend that I expect will continue, as AstraZeneca continues to implement its pivot towards oncotherapy.
Competition intensifies
However, not everything has been plain sailing for the company. Competition from producers of generics and bio-similars represents a big problem for drugmakers, and AstraZeneca is no different. Just recently, Novartis launched a generic variant of AstraZeneca’s Faslodex, a treatment for hormone receptor-positive metastatic breast cancer. Sales of Faslodex totalled £812m in 2018, and represented 5% of the business’s total sales.
It has been on the US market since 2002, and has been approved in Europe since 2004, but it only recently achieved blockbuster status (annual sales of over $1bn), with total sales of almost £810bn in 2018. This surge was due to a watershed phase 3 study published in 2017 that demonstrated the drug’s effectiveness in a number of new applications. AstraZeneca has fought the introduction of the Novartis generic for several years with some success, but it appears that its time is now up.
Investor’s perspective
With a forward P/E of 21, the stock is not cheap, although a solid dividend yield of 3.7% may offset that concern. Taking a long-term view, I think that the positive trial results for Lynparza will ultimately prove to be of more importance to the stock. The Faslodex generic has been in the works for some time now, and AstraZeneca has been lucky to have retained exclusivity for so long. Meanwhile, Lynparza has the potential to really take off, and contribute meaningfully to sales growth for years.
Right now, shares of AstraZeneca trade at just under 6,000p, and have changed hands between 5,000p and 6,500p over the past 12 months. I don’t think that the trial results will have an immediate impact on that share price, but if Lynparza were to be approved for additional indications, I would expect to see a boost to AstraZeneca’s valuation.
While the final word on approval rests with the regulators, this trial data will go a long way towards making the case for the drug. At the end of the day, there just aren’t that many effective treatments for pancreatic cancer. Expect to hear more about this treatment from AZN.
