Interactive Investor

ii view: AstraZeneca gains EU cancer drug recommendation

21st September 2020 15:53

Keith Bowman from interactive investor

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Cancer treatments are becoming increasingly important at this UK drug giant.

Drug updates

ii round-up:

Pharmaceutical company AstraZeneca (LSE:AZN) today received a European Union regulatory drug panel recommendation for its medicine Lynparza in the treatment of two types of cancer. 

The drug, developed in partnership with Merck & Co (NYSE:MRK), has been recommended for the treatment of both a form of prostate cancer and as a first-line maintenance treatment for a form of advanced ovarian cancer. 

Its Tagrisso drug also received positive phrase three trial data, reducing the risk of lung cancer recurrence in the brain by over 80%. 

Astra shares remained lower in afternoon UK trading during what has been a very weak session for the wider stock market. However, the share price has risen by around 80% over the last three years. Shares for maker and supplier of non-patented drugs Hikma Pharmaceuticals (LSE:HIK) have more than doubled in the same time, while pharma and consumer healthcare product maker GlaxoSmithKline (LSE:GSK) has virtually stood still.
   
Previously reported second-quarter cancer drug sales at AstraZeneca rose by a quarter to $2.8 billion and accounted for 45% of total group sales. Sales for lung cancer drug Tagrisso jumped by a third to of over $1 billion. 

Prostate cancer is the second-most common type of cancer in men, with an estimated 1.3 million new patients diagnosed worldwide in 2018. Ovarian cancer is the fifth most common cause of cancer death in Europe. 

Astra is currently working with Oxford University to try and develop a Covid-19 vaccine. Both first- and second-quarter sales at the Cambridge headquartered company were buoyed by hospital moves to top up their store cupboards, in order to fight other conditions which can aid coronavirus.  

Third-quarter results are scheduled for 5 November.

ii view:

AstraZeneca is a global, science-led biopharmaceutical company. It is focused on the discovery, development and commercialisation of prescription medicines. It remains on track for a third consecutive year of sales growth. In 2019, Europe generated just under a fifth of total sales. Today’s news should help grow continental revenues going forward. 

For investors, excitement created by developed new medicines and growing cancer drug sales has fuelled a re-rating of the shares. They now trade on a forward price/earnings (PE) ratio of over 25 compared to a 10-year average of less than 15 and a forward PE of below 15 at rival GlaxoSmithKline. As such, the dividend yield is now more reflective of growth, although arguably still attractive at around 2.5% on an historic basis. In all, recent results and ongoing developments appear to justify the heightened valuation, reflecting progress being made. 

Positives: 

  • Oncology product sales account for over 40% of total H1 sales
  • Attractive dividend

Negatives:

  • Other medicine sales including those where patents have expired fell by 8%
  • Respiratory & immunology sales retreated by 11% in Q2

The average rating of stock market analysts:

Buy

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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