In early June, I wrote a bullish article on AstraZeneca (NYSE:AZN), with a thesis stating that the company's extensive oncology pipeline, as well as its attractive buyout prospects in light of Pfizer's (NYSE:PFE) recent attempts to court AZN (which ultimately valued AZN at $120 billion) were compelling reasons to accumulate shares. However, I also factored in the underlying risk to an AZN investment, since, after all, the company is one of many to suffer from patent expirations and lackluster performance (see previous article for more details).
For AstraZeneca, these issues have continued to exacerbate top line pressure, prompting concern about its future prospects. But with the EC Marketing Authorization for AstraZeneca's ovarian cancer drug Lynparza (olaparib), there is more evidence to support my claim that the company can flourish independent of Pfizer. Thus, I reaffirm my bull thesis, since I'm confident that AZN should improve its long-term prospects with this landmark achievement.
Some key highlights from AZN's latest announcement are as follows:
- "The European Commission approves AstraZeneca's Lynparza (olaparib) for the maintenance treatment of adult patients with platinum-resistant relapsed BRCA-mutated (germline and/or somatic) high grade serious epithelial ovarian, fallopian tube or primary peritoneal cancer who are in complete response or partial response to platinum-based chemotherapy.
- Olaparib is a poly ADP-ribose polymerase (PARP) inhibitor that exploits DNA repair pathway deficiencies to preferentially kill cancer cells. It is the first PARP inhibitor approved for patients with platinum-sensitive relapsed BRCA-mutated ovarian cancer. Appropriate patients will be identified through a validated diagnostic test.
- The company is investigating the efficacy of olaparib in other cancer types."
The company has flagged olaparib as a potential $2 billion-a-year seller.
Despite the fact that shares of AstraZeneca have largely declined ever since the announcement of new tax inversion laws, coupled with Pfizer's announcement of a massive stock buyback - both of which essentially solidified that it will not attempt to acquire AstraZeneca - I reiterate my bull thesis on AstraZeneca following the approval for olaparib. This achievement follows the positive EMA recommendation for olaparib in late October. As expected, the European Commission voted in favor of the EMA opinion. AstraZeneca now has the opportunity to penetrate a large market in ovarian cancer, currently estimated at $19 billion, and projected to rise to $35 billion by 2018. Furthermore, CEO Pascal is very optimistic about the market potential for olaparib, having routinely stated that it could be a $2 billion-a-year seller. Ultimately, I'm inclined to agree, for not only is olaparib the first PARP inhibitor in its class to reach the EU, but it is also indicated for a variety of different cancers, which should increase AstraZeneca's market opportunity. Going forward, it will be interesting to see how the FDA rules on olaparib in light of its decision to deny accelerated approval. For now, I reiterate my bull thesis on the company.
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