Here's Why AstraZeneca's (AZN) Shares Are Up Year to Date

AstraZeneca plc.’s AZN stock has rallied 24.9% this year so far, outperforming the industry’s rise of 4.7%.

 

 

The company’s outperformance has been backed by quite a few positive developments on the regulatory and pipeline front, strong performance of its relatively newer drugs and decent quarterly results.

New Drugs Enable Return to Growth

AstraZeneca returned to product sales growth in the second half of 2018 with the momentum continuing in 2019 on the back of its newer drugs, mainly cancer medicines Lynparza, Tagrisso and Imfinzi. Patent expirations have been hurting its product sales growth since 2010. However, sales of AstraZeneca’s newer medicines soared 81% in 2018 and 77% in the first half of 2019 as almost every product it launched in recent years has done well. The company is confident of seeing growth in the long term, driven by sales of its new medicines, namely Tagrisso, Imfinzi, Lynparza, Farxiga and Fasenra.

Emerging Markets: A Key Top-Line Driver

Emerging markets represent AstraZeneca’s largest market in terms of product sales and accounted for 33% of its total product sales in 2018 and 35% in 2019 so far. Revenues from the emerging markets climbed 8% in 2017, 12% in 2018 and 26% in the first nine months of 2019, supported by strong growth in China. The company is looking to make additional investments in China. In fact, in the Emerging Markets, countries outside China are also starting to contribute more with sales in the ex-China markets rising 12% in 2019 so far. Thus, AstraZeneca’s operations in the emerging markets should place it well, going forward.

Pipeline Developments

AstraZeneca delivered well on its R&D pipeline with meaningful data readouts and regulatory updates announced this year.

Late-stage studies on key pipeline candidates, such as anifrolumab for systemic lupus erythematosus and Breztri Aerosphere/PT010 (fixed-dose triple combination inhaler) met primary endpoints. Also, several late-stage studies evaluating AstraZeneca’s successful cancer drugs like Lynparza, Imfinzi, Calquence and Tagrisso demonstrated improved survival rates in expanded patient populations

This year’s new drug approvals include Breztri Aerosphere in Japan and Qternmet XR/Qtrilmet (a combination of Farxiga and Onglyza plus metformin) in the United States and Europe.

Key approvals for line extensions of newer drugs in 2019 so far include Lynparza for front-line ovarian cancer in Japan and the EU as well as for breast cancer in the EU, and Farxiga/Forxiga for type-I diabetes in the EU and Japan. Notably, AstraZeneca markets Lynparza in partnership with Merck MRK.

In April 2019, AstraZeneca acquired joint development and commercialization rights to an innovative antibody drug conjugate (ADC) trastuzumab deruxtecan from Japan’s Daiichi Sankyo. A regulatory application seeking approval of trastuzumab deruxtecan for metastatic breast cancer was granted a priority review by the FDA in October with decision expected in the second quarter of 2020.

Several other pipeline and regulatory events are scheduled for the rest of this year. This includes an NDA filing in the United States for roxadustat, which has been developed to treat anemia in patients with chronic kidney disease. AstraZeneca also awaits the FDA decision in the United States and Europe on regulatory applications seeking use of Lynparza tablets for BRCAm pancreatic cancer later this year.

Conclusion

AstraZeneca, which currently carries a Zacks Rank #3 (Hold), has its share of challenges. These include generic competition for its core products, stiff contest in its diabetes franchise and pricing pressure on its respiratory franchise. However, we believe, the company’s newer drugs, upcoming product launches, aggressive cost-cutting efforts and a promising late-stage pipeline should keep the stock afloat through the remaining year and probably next year too.

Some better-ranked large-cap pharma stocks are GlaxoSmithKline GSK and Novo Nordisk NVO, both carrying a Zacks Rank #2 (Buy).

Glaxo’s earnings estimates have increased 4.1% for 2019 and 0.3% for 2020 over the past 60 days. The company’s shares have increased 15.3% this year so far.

Shares of Novo Nordisk have risen 24.3% this year so far. Earnings estimates for 2019 and 2020 have risen 0.8% and 1.0%, respectively, over the past 60 days.

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