Morningstar | AZN Updated Forecasts and Estimates from 09 Nov 2018
AstraZeneca reported third-quarter results largely in line with our and consensus expectations, and we don't expect any significant changes to our fair value estimate based on the results. We continue to view the stock as slightly overvalued, partly due to our concerns about how dependent Astra remains on asset sales for growth.In the quarter, total sales fell 13%, largely due to lower externalized revenue (asset sales), but we expect sales growth will improve in 2019 as new products gain more market share. As Astra has faced significant generic competition to older drugs, it has taken a strategic approach to selling noncore drugs to offset the generic competition until new drugs gain sales traction. We expect Astra will become less dependent on divesting noncore drugs over the next three years, but as these divestments decrease, the company's growth will be impaired.
Excluding externalized revenue, product sales increased 9%, showing the improving strength of Astra's recently launched drugs. In particular, the company's oncology franchise is showing impressive growth of over 50%, led by Tagrisso, Lynparza, and Imfinzi, and we expect strong growth rates for all of these drugs as new indications open up larger patient populations. Results for Imfinzi in first-line non-small-cell lung cancer should read out in the fourth quarter with survival data from the Mystic study and in the first half of 2019 with data from the Neptune study. Also, in late 2019, data expected from Calquence in the rare blood cancer chronic lymphocytic leukemia holds the potential to drive significant gains. Beyond cancer, Astra holds several strong assets in respiratory and diabetes, but we expect less potential in these markets. Nevertheless, the strong current platform of drugs, waning impact of generic pressures, and growing strength from new drug launches (particularly in cancer) reinforce our wide moat rating.
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." However, we note that Merck's recent stock price gains have led to the stock looking more fairly valued currently than what is suggested in the title of this report.
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