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Here's Why AstraZeneca (AZN) is Outperforming Its Industry

Zacks Equity Research

AstraZeneca plc.’s AZN stock has rallied 19.3% this year so far, outperforming the industry’s decrease of 0.8%.

 

The company’s outperformance has been backed by quite a few positive developments on the regulatory and pipeline front, strong performance of its relatively newer drugs as well as a bullish outlook for the second half of the year.

New Drugs Enable Return to Growth

Newer drugs like Brilinta (cardiovascular), Lynparza (ovarian cancer), Farxiga/Forxiga (type II diabetes) and Tagrisso (lung cancer) are driving top-line growth, with AstraZeneca launching them in more markets and in an increased number of indications. Tagrisso became AstraZeneca’s biggest medicine in 2019. Brilinta and Farxiga achieved blockbuster status in 2017, exceeding $1 billion in sales. In fact, AstraZeneca expects Imfinzi and Lynparza to achieve blockbuster status by this year. This means five of its newer medicines (Tagrisso, Brilinta, Farxiga, Imfinzi and Lynparza) will have blockbuster status by the end of this year. AstraZeneca is looking for further label expansions of these drugs.

AstraZeneca returned to product sales growth in 2018. The momentum continues in 2019 so far mainly on the back of its newer drugs. Patent expirations have been hurting its product sales growth since 2010. Sales of AstraZeneca’s newer medicines rose 81% in 2018 and 77% in the first half of 2019 as almost every new product it has launched in recent years has done well. The company is confident of seeing growth for several years driven by sales of its new medicines, Tagrisso, Imfinzi, Lynparza, Farxiga and Fasenra.

Positive Pipeline Developments

AstraZeneca delivered well on its R&D pipeline with meaningful data readouts and regulatory updates announced this year.

Late-stage studies on key pipeline candidates, anifrolumab for systemic lupus erythematosus and Breztri Aerosphere/PT010 (fixed-dose triple combination inhaler) met primary endpoints. Also, several late state studies evaluating AstraZeneca’s successful cancer drugs, Lynparza, Calquence and Tagrisso demonstrated improved survival rates in expanded patient populations

This year’s new drug approvals include Breztri Aerosphere in Japan and Qternmet XR (a combination of Farxiga and Onglyza plus metformin) in the United States.

Key approvals for line extensions of newer drugs in 2019 so far include that for Lynparza in front-line ovarian cancer in Japan and EU and for breast cancer in EU, and Farxiga/Forxiga for type-I diabetes in EU and Japan. Notably, AstraZeneca markets Lynparza in partnership with Merck MRK.

In April 2019, AstraZeneca acquired joint development and commercialization rights to an innovative antibody drug conjugate (ADC), trastuzumab deruxtecan, from Japan’s Daiichi Sankyo. A regulatory application seeking approval of trastuzumab deruxtecan in metastatic breast cancer is expected to be filed with the FDA later this year.

Several other pipeline and regulatory events are scheduled for 2019. This includes NDA filing for roxadustat, which has been developed to treat anemia in patients with chronic kidney disease in the United States. AstraZeneca also expects to file regulatory applications for Calquence to get approval for the larger chronic lymphocytic leukemia indication (in frontline and in the relapsed/recurrent disease setting) later this year.

Conclusion

AstraZeneca, which currently carries a Zacks Rank #2 (Buy), has its share of challenges. These include generic competition for its core products, stiff competition in its diabetes franchise and pricing pressure on its respiratory franchise. However, we believe, the company’s newer drugs, upcoming product launches, aggressive cost-cutting efforts and a promising late-stage pipeline should keep the stock afloat through the rest of the year.

Some other top-ranked large-cap pharma stocks include Sanofi SNY and Novartis NVS.  Both carry a Zacks Rank #2.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Novartis’ earnings estimates for 2019 have gone up 1.8% while that for 2020 have increased 1.1% over the past 30 days. Novartis stock has returned 15.9% so far in 2019.

Shares of Sanofi have risen 10.2% this year so far. Earnings estimates for 2019 and 2020 have risen 0.9% and 1.1%, respectively over the past 60 days.

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