It’s barely even a fading memory for some, but a little less than a year ago, a handful of AstraZeneca plc (NYSE:AZN) shareholders were frustrated the company wasn’t terribly interested in selling itself to Pfizer Inc. (NYSE:PFE).
Now, the AZN holdouts who demanded a steep price for AstraZeneca stock –– a price they knew Pfizer would never actually pay –– look like geniuses.
The big pharma name has more going for it than it has had in years, and it’s increasingly clear the drug company was right to remain on its own.
The next step? Getting investors to see it, and inspiring them to buy some AstraZeneca stock as a result. Fortunately, a double dose of good news last week may be just what’s needed to get AZN back in the market’s spotlight.
The Rest of Big Pharma Has Nothing on AZN
As a refresher, the best and final offer Pfizer made to AstraZeneca came in May of last year. The suitor offered $119 billion for its target, or $95.52 per share of AstraZeneca stock. But, it just wasn’t enough. As the AZN board put it, Pfizer was staging “an opportunistic attempt to acquire a transformed AstraZeneca, without reflecting the value of its exciting pipeline.”
That exciting pipeline consisted of an impressive swath of oncology drugs … immunology drugs, to be specific.
MedImmune, AstraZeneca’s biologics division, is working on cancer vaccines MEDI4736, MEDI6469, MEDI0680, and further developing already-approved drug tremelimumab. Under the AstraZeneca umbrella is olaparib, which recently won priority review as a therapy for ovarian cancer, and AZD9291 was given a breakthrough therapy designation as a non-small cell lung cancer drug. AZD3293, a treatment for Alzheimer’s, is also in phase 2/3 testing.
All told, AstraZeneca had about a dozen drugs in late-stage trials when PFE mad its offer, and AZN expected its future drug portfolio to be generating $45 billion per year by 2023.
As it turns out, the company may have known exactly what it was talking about.
Last week, the FDA gave tremelimumab an orphan drug designation as a treatment for mesothelioma. Though it’s a small market, if approved as a therapy for the rare form of cancer, AZN would enjoy seven years of being the exclusive provider of a treatment explicitly approved for that ailment.
Meanwhile, tremelimumab is being tested in conjunction with MEDI4736 as a treatment for lung cancer. That study shows tremendous promise as well.
It gets better. Last week, AstraZeneca also announced that its selumetinib has also been given orphan drug status as a treatment for uveal melanoma. The company also said last week its AZD9291 trial led to an average of 13.5 months of progression-free survival for non-small cell lung cancer sufferers. AZN aims to request final approval for that drug in that capacity by the end of the current calendar quarter.
In fact, it was AZD9291’s potential that largely led most owners of AstraZeneca stock to shun the takeover overtures from Pfizer last year. The company believes AZD92921’s sales could reach as much as $3 billion per year.
All of a sudden, the decision to do its own thing looks like a brilliant decision for AZN.
Bottom Line for AstraZeneca Stock
To be fair, a few pieces of good news don’t necessarily change the game for the AZN. On the other hand, last week’s round of encouraging announcements wasn’t uncharacteristic for AstraZeneca — we’ve been hearing such news over the course of the past year.
The only difference now is that a few of these drugs are moving within sight of the finish line.
With all of that being said, investors looking at AZN for near-term portfolio exposure to big pharma may want to rethink their stance. The company knows the next few years could be lackluster. The organization is more concerned about its strength five years from now than its strength five months from now, and it’s putting itself in a situation to thrive for the long haul — not necessarily the short term.
Case in point: The compensation and bonus structure has been reconfigured to reward not just sales growth, but fiscal health. As an example, the company’s management team is required to maintain a dividend coverage ratio at or above 1.5 times the company’s core earnings. Such a standard (broadly speaking) indicates true financial health.
Still, the long-term growth picture should be encouraging to AZN shareholders.
Some of its key drugs are still poised to lose patent protection after many already have. Barclays believes the ongoing tumble off the patent cliff will drive revenue lower about 3% per year through 2018. Once 2018 arrives though, the company expects to see sales growth again. By 2023, AstraZeneca expects to be generating $45 billion in annual sales, versus last year’s top line of $26 billion.
Pfizer probably wishes it had bid higher.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
