It's all about the pipeline at AstraZeneca

Astra has recently suffered at the hands of drugs intellectual property laws: its former top selling statin Crestor reported a 44 per cent sales decline to $631m (£487m) in the first quarter of 2017 after it lost patent protection halfway through last year. This follows the decline in sales of heartburn drug Nexium and inhaler Symbicort, which have both seen prices slashed and an increase in competition in recent years. To deal with the decline, the group has been licensing out drugs to fellow pharma companies. But some argue that this revenue - which rose 3 per cent to $562m in the first quarter of 2017 - is of lower quality than pure drugs sales. Astra needs a big new drug launch to plug its revenue deficit.

The drugs combination being trialled in Mystic - durvalumab and tremelimumab - has been flagged as the one to fill that hole. Both drugs work by attaching to receptors on cancerous cells which alerts the body's immune system to their presence, thus triggering an immune response. Crucially, the drugs target different receptors, meaning together they should work for a wider range of patients than they would as single therapies. Their launch would be the first combination immunotherapy worldwide.

Immuno-oncology has been a hotly contested part of the global pharmaceuticals market in recent years, mainly because of the big returns companies can generate from a successful drug launch. Bristol-Myers Squibb's (BMY) Opdivo was the first immunotherapy to gain approval in 2015 and was followed quickly by Merck's (MRK) Keytruda. The latter has since been approved as the first choice treatment for patients whose cancer exhibits certain receptors, known as PD-L1. Meanwhile, Opdivo recently failed its own combination trial. Although this has kept the market open for Astra, some investors have raised concerns that the similarities between Opdivo and durvalumab mean that the latter is also at risk of failure.

But in early May, durvalumab was approved as a monotherapy, alleviating some of the risks of the combination trial. Plus, Astra is also evaluating the efficacy of the combination in just PD-L1 patients, who responded very well to durvalumab alone. This means that if the 'all patient' trial fails, there is still chance of success for just those with PD-L1 receptors.

Risk of failure is still high and there is no doubt that a poor result would hammer Astra's share price in the short term. Broker Liberum puts a £28 value Astra's shares in the doomsday scenario that every trial fails or £70 should all the key trials go as the group hopes. Indeed, Mystic is not Astra's only pivotal drugs trial. There are 14 more trials due to announce final phase data in 2017 and another 12 the year after. Plus, the wider pipeline comprises 78 early-stage clinical trials. On a risk-adjusted basis, analysts expect the top four of these drugs (including durvalumab + tremelimumab) to generate a total of $8bn at their peak.

The risks associated with late-stage drugs trials means that analyst are not including these potential sales in their forecasts. Earnings for the next few years therefore still look downcast and have left the group's forward PE ratio at a rather full 18 times. But this overlooks the potential for the pipeline to deliver. The upswing in both the share price and earnings if Astra succeeds in just one of its many crucial trials could be significant.