Morningstar | Astra Posts Solid 2Q, With Strong Cancer Drug Sales Mitigating Generic Competition to Older Drugs
AstraZeneca reported second-quarter results slightly ahead of both our and consensus expectations, and we've moderately raised our fair value estimate based on the outperformance. However, we continue to view the stock as modestly overvalued. While the pipeline continues to progress well, supporting the firm's wide moat, the price of the stock appears to imply too high of a growth rate. Nevertheless, we expect Astra to post strong growth in 2019 following the annualization of the Crestor patent loss in 2018. However, we expect a decline in externalized revenue will depress long-term growth as we believe the product divestments fueling this revenue line are not sustainable at current levels.In the quarter, total product sales fell 1% year over year as strong growth from cancer drugs and respiratory drug Fasenra helped mitigate the heavy generic competition. We expect growth will accelerate in the back half of 2018 as generic pressures ease and several new drugs continue to penetrate the market. In particular, the surprisingly strong growth from Fasenra in the quarter suggests stronger peak potential. The biologic composition of the drug and indication in the severe asthma setting provide much stronger pricing power relative to small-molecule respiratory drugs treating less-severe patients. Further, the eight-week dosing is likely helping the drug gain market share over competitive drugs in the market.
Beyond the respiratory setting, Astra's cancer drugs continue to post solid gains, led by EGFR-mutant lung cancer drug Tagrisso. We expect the drug's recently approved indication in the first-line setting triples the opportunity set of patients. Further, with limited competition emerging in the space, we believe the drug is very well-positioned to hit annual sales above $4 billion by 2021. Also, Imfinzi's recent approval in stage 3 lung cancer should drive the drug's peak potential to almost $2 billion annually for this indication alone.
For a deeper dive into the outlook for Imfinzi and competitive immuno-oncology drugs, please see our report "Overall Immuno-Oncology Market Underappreciated, Supporting Undervalued Wide-Moat Firms Roche, Merck and Bristol-Myers."
AstraZeneca is a holding company. Through its subsidiaries, Co. operates as a biopharmaceutical company engaged in discovering, developing, manufacturing and commercializing its pipeline of small molecule and biologic prescription medicines, including targeted business development through collaboration, in-licensing and acquisitions. Co. is focused on three main therapy areas: Oncology, Cardiovascular and Metabolic Diseases, and Respiratory. Co. is also selectively active in autoimmunity, infection and neuroscience. In addition, Co. works across small molecules, oligonucleotides and other drug platforms, as well as biologic medicines.
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