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AstraZeneca: Surprise At ASCO May Mean New Highs Ahead

Jun. 01, 2020 7:34 AM ETAstraZeneca PLC (AZN)AZNCF26 Comments
DoctoRx profile picture


  • AZN has been acting well, and discussed impressive trial results at ASCO on its best-selling drug.
  • Specifically, Tagrisso for various mutant forms of NSCLC had unexpectedly massive benefit over placebo when used after surgery.
  • This will increase sales materially; exactly how much is uncertain. Various considerations are discussed in the article.
  • Other positive news that could be material for AZN was also presented at ASCO.
  • I have moved from looking at AZN as an asset to trade within a rising channel to a long-term hold now.


AstraZeneca (NASDAQ:AZN) has been a strong stock market performer the past few years despite the following unimpressive results, as presented on page 2 of its 2019 Annual Report and comparing 2017 with 2019:

  • revenues up 8.5%
  • net cash flow from operating activities down 17%
  • reported operating profit down 20%
  • "core" operating profit down 6%
  • reported EPS down 57% to $0.515 per ADR
  • "core" EPS down 18%.

Yet the stock is up 50% since May 29, 2018, closing at $54.60 in US trading as of Friday, May 29.

Formed in 1999 via a merger of the Swedish Astra AB and the British Zeneca Group, AstraZeneca trades in London and Stockholm. Each regular share converts to two ADRs, which is the usual way Americans such as yours truly buy the shares.

AZN reports using IFRS rather than US GAAP.

AZN trades at 106X TTM EPS.

Here is a 3-year chart of AZN versus an index of major drug companies (DRG) and the S&P 500 (SPY):

Clearly the mythical Mr. Market has been looking past the earnings valley, focusing on the sales growth and expecting earnings to catch up.

That leads to a discussion of Q1 results. The presentation and conference call related to Q1 are also of interest.

A strong first quarter sets the stage

AZN provides a thorough quarterly earnings report. If you are interested in the company and not very familiar with it, please consider reviewing it at your leisure. I will discuss just a few points and then move on to its press releases from ASCO (American Society of Clinical Oncology), which is ongoing as I write this on Sunday.

AZN showed sales growth of 16%, of which several percent was due to stocking related to COVID-19 lockdowns.

Reported EPS rose 27% to about $0.295 per

This article was written by

DoctoRx profile picture
Over 40 years of investing in individual stocks. Retired physician (cardiologist). Also retired from various roles in the US pharmaceutical industry. Main focus is on growth stocks, mostly biotech and tech, but with fundamental value considerations. Secondary focus on macro trends driving asset allocation.

Analyst’s Disclosure: I am/we are long AZN, RHHBY, LLY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Not investment advice. I am not an investment adviser.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (26)

john edwin peterson profile picture
Thanks for the article DoctoRx. The Mythical Mr Market is having a rotation now, funds are scooping up doormats. ThO wielding his hammer today
OLDMUSKIE profile picture
Thanks for another fine article, Doc. Lots of good stuff here.

With regards to your comment on Tagrisso patents, you said "I can report that AZN has listed two patents on Tagrisso in the FDA's Orange Book that expire in 2032, and another one that expires in 2035."

To amplify this point, I would add that not all US patents are created equal: some are strong, some so-so, some weak. The two patents that expire in 2032, are however, so-called "Compound" patents, which are among the strongest of all pharmaceutical patents. By definition, they are practically impossible to work around because they claim the chemical composition of the drug molecule itself. The chances of proving their invalidity in a federal district court are historically only about 1 in 50. The third patent is a so-called formulation patent and is much weaker. I would estimate the odds of proving invaildity OR being able to work around the claims are much higher, possibly 3 in 4. So I would say that 8/8/2032 is the date where we can expect to see generic competition for Tagrisso, unless AZ cuts a deal in litigation with a presumed generic competitor for a slightly different generic-entry-date.
DoctoRx profile picture
OldMuskie, you're very welcome. Nice to hear from you again; thanks for the compliment; it's much appreciated, esp. from you.

Agree re the patents; thanks for pointing this important detail out.

My further guess beyond your points is that Tagrisso may be difficult to improve upon given the amazing results in adjuvant therapy, but by 2032, it is possible it will be yesterday's story. So it is possible that AZN will control it, at least in the US, for the entirety of its life as a cutting-edge drug.
AZN in merger Talks with GILEAD Sciences
Breaking news
Dmitry Kovalchuk profile picture
I like AZN very much. The only reason why I have not started a position yet is the fact that the world has moved too quick and everything seems way to expensive now.

Also their geographical focus is very interesting under normal conditions, but in the face of possible cold war between China and the US might prove to be a short/medium term challenge.

Nevertheless I might open a position in AZN on the next weakness or maybe even today....
Thanks for our encouraging article on AZ.
Have watched for years as their research seemed to somehow miss the recognition it deserved.
You have now given it meaning.
On a side issue my only concern though not scientific is the sort of collaboration with the British government , I am a British resident and know that this GOVERMENT when suits will drop Az like a ton of bricks if it looks bad for them .
But once again thank you for the encouraging outlook and Az for offering hope to cancer sufferers .
DoctoRx profile picture
MATAD, you're welcome; my pleasure. Thanks for sharing your knowledge and POV. I'm hoping BoJo et al show fortitude as needed.
gelstretch profile picture
Thanks, Doc.....

I love this company, and I have to say their charts are as attractive as one might desire for a long position.... would trade it even if I did not know their business model.

Thanks for the "heads up" !
DoctoRx profile picture
Gelstretch, you're very welcome. Nice to hear from you again; agree re the chart. Is it getting ready for lift-off?
gelstretch profile picture
Yes, Doc..... the momentum to the upside is underway on the smaller time frame charts (15 min, 30 min et al), however the chart that has my attention is the Daily which has a price pattern structure that is very bullish, including a volatility Squeeze which will give the stock a substantial upward boost as it launches the pent up momentum.

I remember Astra from many years ago when they dominated the dental industry in their product category. Nice to see them once again with recognition in their new ventures.
DoctoRx profile picture
TY for those details. Here's hoping the stock performs as well as AZN's mgmt!
Excellent article Doc. totally agree with your conclusions.
- Tagrisso will do very well. It is a very good product. Too bad the market size is not as big as Keytruda and Opdivo. The EGFR market is between 30% and 35% of the total NSCLC market.(depending the study you look at ) It will continue to do well.
- Infinzi will exceed $2.0 Billion this year.
- Farxiga too will reach $2.0 B. this year. Do not feel their new indication of Heart failure with or without Diabetes will make a big difference in sales.
- Their other star is Brilanta. It should reach $2.0 B this year. I see one great opportunity here is COVID. 90 mg B.I.D. should help the patients a lot. They should do a study. These days most patients post stenting are getting Brilanta for up to 3 years.
- You hit the nail on the head when you said they have a very good CEO. Pascal Soriot is a very sharp person. Just watching him managing the LOE of 2 huge products Crestor and Nexium is a pleasure. When he was short of funds, to do the big studies for Lynparza he went into partnership with Merck. I had the pleasure of presenting to him in my early days at Roussel. (one of the Sanofi Cos. ) He was the head of anti-infectives based in Paris. I had to present the marketing plan. A very sharp person.
In conclusion AZ has done very well and will continue to do well. It is quite possible for another big Pharma to try and acquire AZ.
DoctoRx profile picture
Jim, thanks for the compliment. It means a lot coming from you.

Many thanks to you for your brilliant discussion. This complements my article perfectly. I hope all subsequent readers make sure to read your comments. Interesting you have met and interacted professionally w Pascal Soriot. Nice to hear he impressed you.

I have been wondering about Farxiga and the CHF indication. It *should" be material to sales, but I am cautious as you are.

Agree a small number of mega-cap pharma co's might want to acquire AZN, such as MRK. Somehow I don't see Roche or Novartis going that route. JNJ? Usually not their style to go so big... well, time will tell (as always).

Best regards -

Thanks Doc.
They just appointed Brad Mclean in charge if the Farxiga HF indication. Global Director. Brad is very good.
Will wait and watch. Best wishes.
B of A Global Research, formerly Merrill Lynch, published a report on May 29 on AZN entitled: Tagrisso Adjuvant Pill: Simply Stunning!

They conclude:
"Buy for premium growth
AZN remains a Buy for best-in-class growth (9% 21-24E sales CAGR, with significant
underlying EBIT margin growth from 17% FY19A to 35% FY24E, driving mid-teens EBIT
CAGR), and an impressive launch portfolio. Key launches include Calquence in CLL
(recently approved), Enhertu (in post-Kadcyla breast cancer), roxadustat (China ongoing,
US from end-20E) and Farxiga heart failure (from mid-20E). We are particularly bullish
on roxadustat and Enhertu, and early Tagrisso adjuvant success is a positive surprise."

Long AZN
DoctoRx profile picture
Ahimsaka, many thanks. Nice to see that.

Based on this and other reports, IMHO Calquence could be a sleeper mega-hit.
stevevai1983 profile picture
Nice article Doc,

Short comments for AZ: best in class big pharma :)
stevevai1983 profile picture
oh I would add 1 more comment for the area that i am quite familiar, that is AZ in China.
Basically AZ is the strongest big pharma in China. They had strongest sales team by far. They had massive number of sales people that penetrate tier1-5 cities...Tagrisso is selling like crazy. China market is very big and it's growing very fast.
DoctoRx profile picture
Thanks, Steve.

You win the Internet today for most cogent, concise comment. Nicely said!
DoctoRx profile picture
Steve, TY for the add'l color. Do you know how realized (net) prices for Tagrisso in China compare w those in the US?
Nice article Doc, thanks....Company has an interesting pipeline www.astrazeneca.com/... and with a decent dividend.

Valuation also concerns me to a degree but over the longer term it amounts to nothing
if holding the stock longer term as I am doing.
DoctoRx profile picture
Hi AL, you're welcome. Nice to see you have been your patient self w AZN. Well-rewarded: congrats!
Thanks Doc....Yes, I was patient as I am with most companies
that trade sideways for longer than sometimes I'd like....
No one calls tremelimumab, "tre". Internally, we say "treme" [TREM-ee]. You're absolutely right though that the combination trials have been disappointing. Lots of good science being done though. Work has not slowed down at all with the pandemic; it's accelerated high priority projects.

Source: immuno-oncology scientist.
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