AstraZeneca’s (AZN) highly anticipated drugs trial, Mystic, has flopped. Lung cancer patients treated with the group’s new combination therapy didn't achieve progression-free survival – in simple terms, it didn’t deliver a material improvement to patients' conditions – in what analysts at Liberum described as “the worst-case scenario” for the trial. The extent to which the group is relying on successful clinical outcomes and new drug launches was confirmed by its half-year results. In the six months to June 2017, the group reported a 9 per cent drop in constant-currency revenue, as demand continues to slide for former top-selling drugs.
It is easy to find the negatives in AstraZeneca’s results. Global product sales dropped by 10 per cent at fixed currencies to $9.8bn (£7.5bn), while the proportion of the top line from lower-margin externalisation revenue (where the group sells or licences non-core drugs) rose to 6 per cent. Operating profits were propped up by one-off gains from the disposal of intangible assets. Lower underlying profit, higher working capital and expensive short-term provisions taken on the rising debt left net cash inflows way down at $338m, from $1.4bn in last year's first half.
Some salvation can be taken from the 3 per cent like-for-like increase in revenue from the ‘growth platforms’, which helped oncology sales reach $1bn for the first time since 2010. But still a worrying 37 per cent of total product revenue comes from just three drugs, all of which have lost their patent protection.
With hopes dashed for Mystic – which would have been the first combination immuno-oncology treatment to hit the market – investors are no doubt morose. But the pipeline holds potential that could yet save Astra. Tagrisso has been approved as the first choice treatment for patients with a certain type of lung cancer, which should help build on the $403m of sales reported in these numbers. The group has also joined forces with US pharma giant Merck (US:MRK) to develop an immuno-oncology combination for the treatment of rare tumours.
ASTRAZENECA (AZN) | ||||
ORD PRICE: | 4,284.5p | MARKET VALUE: | £54.2bn | |
TOUCH: | 4,283.5-4,285p | 12-MONTH HIGH: | 5,520p | LOW: 3,996p |
DIVIDEND YIELD: | 5% | PE RATIO: | 18 | |
NET ASSET VALUE: | 1079ȼ* | NET DEBT: | 84% |
Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (ȼ) | Dividend per share (ȼ) |
2016 | 11.7 | 0.69 | 51 | 90 |
2017 | 10.5 | 1.07 | 80 | 90 |
% change | -11 | +55 | +57 | |
Ex-div: | 10 Aug | |||
Payment: | 11 Sep | |||
*Includes intangible asset of $39bn, or 3,010ȼ a share £1=$1.31 |