AstraZeneca Fairly Valued after Solid Q3

The Big Pharma group posted a solid third quarter, with generic drugs continuing to weigh on growth while its pipeline develops further

Damien Conover, CFA 10 November, 2015 | 9:00AM
Facebook Twitter LinkedIn

AstraZeneca (AZN) posted third-quarter results largely in line with our expectations, and we don’t expect any significant changes to our fair value estimate of £41.60 per share. At the current market price, we view Astra as fairly valued, with the market correctly valuing a strong pipeline helping to mitigate an industry-leading amount of patent expirations.

We believe the innovation in the pipeline is strong enough to offset the patent losses, supporting our wide moat rating for the firm. Additionally, while Astra slightly increased its full-year 2015 guidance, we believe better-than-expected sales from gastrointestinal drug Nexium largely supported the improved outlook and we expect these sales to fall quickly in 2016 as more generics enter the market.

On the top line, recently launched drugs are partially offsetting generic competition, leading to an overall sales decline of 2%, but we expect this decline to accelerate into 2016 as generic competition intensifies. Similar to recent quarters, strong growth from cardiovascular drug Brilinta and diabetes drug Farxiga helped offset the impact of generic Nexium. However, in 2016, we expect launches of more generic versions of Nexium as well as the launch of generic Crestor, leading to a major headwind as the drugs represent close to one third of total sales.

A developing pipeline should eventually offset generic competition and reinforce the company’s wide moat. Astra’s oncology pipeline looks particularly well positioned with AZD9291 and durvalumab showing excellent results in lung cancer for specific patient populations. Astra holds several new cancer drugs that should combine well and give the firm more differentiated treatments with strong pricing power. Further, Astra’s appointment of Sean Bohen to the Chief Medical Officer position increases our confidence in the continued success of Astra’s oncology pipeline, as he brings experience from leading cancer company Roche (RO).

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
AstraZeneca PLC12,406.00 GBX-0.18Rating
Roche Holding AG273.80 CHF0.88

About Author

Damien Conover, CFA  is an equity analyst and associate director at Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures