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
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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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
AstraZeneca PLC8,996.00 GBX1.50Rating
Roche Holding AG392.60 CHF-0.46

About Author

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