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AstraZeneca: out of the Mystic

Poor results from the highly anticipated Mystic cancer trial sent the shares down 16 per cent on the day
July 27, 2017

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.

IC TIP: Buy at 4285p

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:4,284.5pMARKET VALUE:£54.2bn
TOUCH:4,283.5-4,285p12-MONTH HIGH:5,520pLOW: 3,996p
DIVIDEND YIELD:5%PE RATIO:18
NET ASSET VALUE:1079ȼ*NET DEBT:84%
Half-year to 30 JunTurnover ($bn)Pre-tax profit ($bn)Earnings per share (ȼ)Dividend per share (ȼ)
201611.70.695190
201710.51.078090
% change-11+55+57 
Ex-div:10 Aug   
Payment:11 Sep   
*Includes intangible asset of $39bn, or 3,010ȼ a share   £1=$1.31