AstraZeneca’s testing flop raises bigger questions about its pipeline
AstraZenecaThe failed late-stage case against Wainua was never expected to have a major financial impact on the company.
Most analysts believe the process failure only impacted their valuation models by 2-4%. Still, shares lost about twice as much in a single session, suggesting the market reaction reflected more than just the loss of a drug intended to treat a rare heart disease.
The discrepancy has focused the attention of Wainua itself on something that is harder to measure: whether the valuation premium that investors have long attributed to one of Europe’s most respected drug pipelines is justified.
For years, AstraZeneca has been among the highest valued among major European pharmaceutical companies, based on the assumption that management consistently runs successful late-stage clinical trials in oncology, rare diseases and specialty drugs and replenishes its portfolio with new blockbuster drugs.
Under CEO Pascal Soriot’s 14-year rule, AstraZeneca has developed a reputation as a pharmaceutical company that rarely publishes negative trial results.
Wainua itself was not expected to be one of AstraZeneca’s biggest products. Rather, the surprise lay in the failure of a program that many investors believed had a high chance of success.
Analysts largely say the disappointment doesn’t undermine AstraZeneca’s long-term growth story, but it may have raised the bar for proof.
The problem goes beyond the additional revenue that Wainua would have contributed to AstraZeneca’s sales, as it affects the company’s credibility, Jefferies analysts wrote in a note to clients on Thursday.
“This was supposed to be a slam dunk, so the complete failure was surprising.”
Bigger than a drug
The financial impact of Wainua’s failure to treat ATTR cardiomyopathy, a rare and life-threatening heart disease, appears to be relatively small.
Citi puts the impact on net present value at about 3%. Jefferies is expecting around 2%, and Leerink Partners’ reduction in price target implied similarly limited success. Bank of America described the revenue impact as “in the mid-single digits,” while Morningstar said lower revenue estimates for Wainua do not materially change the valuation.
Those estimates contrast with market reaction, as shares fell 6.2% on Thursday, marking the stock’s worst day in more than two years, and fell another 3% on Friday.
An AstraZeneca spokesman declined to comment further on the share price reaction.
Rather than simply removing some of the Wainua sales from their models, investors may be reassessing the confidence they place in AstraZeneca’s broader pipeline and implementation.
Dan Coatsworth, market director at AJ Bell, noted that AstraZeneca has had far more successes than failures recently, raising expectations for success.
“AstraZeneca has bold plans to reach $80 billion in sales by 2030, and investors will now question whether that target is credible,” Coatsworth said in emailed comments.
Jefferies said the failed process does not threaten management’s 2030 ambitions, while Citi continues to believe it can exceed that target.
Leerink indicated after discussions with management that the removal of Wainua due to ATTR cardiomyopathy reduces the headroom above the company’s provided consensus from approximately $82.7 billion to approximately $80.8 billion, translating to Wainua sales of $1.9 billion in 2030.
Morningstar left its fair value estimate unchanged and said the setback “does not change our view of its late-stage drug development capabilities,” while noting that AstraZeneca’s oncology franchise, rare disease business and broader pipeline remain intact.
Both Goldman Sachs and Bank of America stressed that investors had not seriously considered the possibility of the trial failing, given the favorable precedent Alnylams Competing drug Amvuttra, which has a similar effect.
A shrinking error rate?
The failed study also comes at an important time for AstraZeneca.
Several of the company’s biggest pipeline catalysts – including the AVANZAR trial for lung cancer, SERENA-4 for breast cancer and Cliramitug, also for ATTR cardiomyopathy – are expected to report data in the coming months, meaning investor attention is now focused on lower-profile results.
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AstraZeneca’s London-listed shares over the last 12 months.
“All eyes are on AVANZAR,” Jefferies wrote, describing it as the next big catalyst that will likely set sentiment. The reading is expected in July or August.
Leerink suggested that the setback puts even more focus on the remaining “binary events” expected later this year.
Most analysts continue to recommend buying the stock. Citi reiterated AstraZeneca as a top drug pick in Europe, Bank of America reiterated its buy rating and Jefferies argued that investors should “buy on dips.”
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