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Apr 19, 2018

AstraZeneca plc (AZN–NYSE) $34.77*

Note: This report contains substantially new material. Subsequent reports will have changes highlighted.

Reason for Report: 4Q17 Earnings Update

Prev. Ed.: 3Q17 Earnings Results

Brokers’ Recommendations: Positive: 87.5% (7); Neutral: 12.5% (1); Negative: 0.0% (0) Prev. Ed.: 6; 4; 0

Brokers’ Target Price: $38.85 (↑ $0.52 from the last edition; 4 firms) Brokers’ Avg. Expected Return: 11.7%

*Note: Though dated Apr 19, share price and broker material are as of Mar 20.

Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.

Portfolio Manager Executive Summary

AstraZeneca develops, manufactures and sells pharmaceutical and medical products. Key focus areas include cardiovascular (CV), gastrointestinal, neuroscience, oncology, respiratory and inflammation, and infection.

Of the eight firms covering AstraZeneca, seven (87.5%) provided positive ratings while one (12.5%) had a neutral stance. Notably none of the firms gave a negative rating on the stock.

Positive outlook (6/10 firms): The bullish firms are encouraged by AstraZeneca’s diversified product portfolio. The firms are also impressed by new products including Lynparza, Brilinta, Farxiga and Fasenra and their potential beyond approved indications. The company’s business development activities to boost its pipeline across varied therapeutic areas also impress these firms. The firms expect investor focus to remain on regulatory and pipeline developments in 2018.

Neutral outlook (4/10 firms): The neutral firms are concerned about the impact of future revenue externalization and product disposals on revenues and impact of Lynparza profit sharing with Merck. These firms are concerned about future Imfinzi lung cancer study readouts in first-line setting following failure in MYSTIC study. Also, availability of generics of Crestor in Europe and Japan is also concerning. The firms, however, believe that increased cost-cutting initiatives will aid earnings but are unlikely to compensate for the continued decline in revenues as major drugs go off patent. This puts AstraZeneca’s long-term growth prospects at risk.

Apr 19, 2018

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Overview

Headquartered in London, UK, AstraZeneca discovers, develops, manufactures and markets prescription pharmaceuticals in the areas of CV, gastrointestinal, neuroscience, oncology, respiratory and inflammation, and infection. Well-known products include Crestor (cholesterol management), Nexium (acid reflux management) and Symbicort (asthma) among others. However, most of these products are facing generic competition.

AstraZeneca strengthened its product portfolio through the June 2007 acquisition of biotechnology company, MedImmune, for $15.6 billion. In August 2011, AstraZeneca sold its Astra Tech business to DENTSPLY for about $1.8 billion in cash. In a bid to add late-stage candidates to its pipeline, AstraZeneca entered into a number of deals (Almirall’s respiratory franchise, Bristol-Myers’ diabetes portfolio, Pearl Therapeutics, Omthera Pharmaceuticals, Takeda’s and Allergan’s respiratory business) in the last few years and struck agreements with companies such as FibroGen, Inc. and acquired ZS Pharma and Acerta Pharma.

With effect from Jul 27, 2015, the company’s ADS ratio changed to two ADSs per ordinary share.

The firms have identified the following investment merits and demerits of AstraZeneca:

Key Positive Arguments Key Negative Arguments Performance of new drugs – Tagrisso, Lynparza, Imfinzi, Calquence, Farxiga and Brilinta- have been impressive, offsetting lower sales of legacy drugs.

The generic competition that AstraZeneca is currently facing or expects to face for its various drugs has put significant pressure on the company’s top line

Emerging markets represent significant commercial opportunity. AstraZeneca plans to accelerate investment and build capabilities in emerging markets, primarily China.

In addition to generic threats, AstraZeneca’s products face intense competition in the market from both large pharma companies as well as small and mid-sized companies.

AstraZeneca is working on bolstering its pipeline and is looking for suitable acquisitions and deals. The company’s collaboration agreements with Merck and Eli Lilly among others are big positives.

The dependence on externalization revenue remains a concern.

The company is also working on reducing the impact of genericization on its key products by trimming its cost structure to drive operational efficiency.

AstraZeneca’s diabetes franchise faces stiff competition.

AstraZeneca also has a promising late-stage pipeline that includes immuno-oncology candidates. Imfinzi is a key drug in the pipeline

Note: The company’s fiscal year coincides with the calendar year.


Long-Term Growth

AstraZeneca has a strong product portfolio and is one of the leading players in the global CV market. The company is working on ramping up Brilinta sales and focusing on its cardio-metabolism (includes diabetes), respiratory and oncology portfolios. Trends of better diagnosis, improved access and favorable patient dynamics should bode well for the company’s established products across its portfolios. However, AstraZeneca has been struggling to deliver growth in the wake of genericization.

Core products like Nexium, Seroquel XR and Crestor are facing generic competition, which is hurting hurt near-term earnings growth. Atacand, Toprol-XL and Merrem are also facing generic competition in the United States. The genericization of key products will make it challenging for the company to drive its top line.

However, newly launched drugs are expected to contribute to the top line and ease the impact of genericization in the long run. Meanwhile, cost-cutting initiatives should drive the bottom line. Streamlining operations, along with its focus on R&D, will benefit the company in the long run. AstraZeneca is also pursuing co-development deals with companies like Merck and Eli Lilly among others to boost its pipeline.

The company has entered into various agreements in 2017 to develop and commercialize its drugs in various countries which should boost long-term growth.

AstraZeneca is working to reduce the impact of genericization on its key products by trimming its cost structure to drive operational efficiency. In 2016, SG&A cost declined 9%, thanks to efficiency savings in sales and marketing operations as well as a reduction in general administration areas. These actions included a major reduction in sales and head office structure in United States marketing. By the end of 2018, these restructuring initiatives are expected to generate net annualized benefits of about $1.1 billion. Streamlining operations, along with its focus on R&D, will benefit the company in the long run.

Meanwhile, AstraZeneca is working on strengthening its oncology product portfolio and has several candidates in its pipeline. The company’s target is to launch at least six new oncology medicines between 2014 and 2020, including Lynparza, Tagrisso, Calquence and Imfinzi, which are already available. The immuno-oncology therapeutic area is presently attracting a lot of interest and represents huge commercial potential.

The company has about 11 new molecular entities in phase III or under regulatory review and several lifecycle management programs.

AstraZeneca has already launched two, Fasenra (benralizumab) and Bavespi, of the four respiratory medicines targeted between 2017 and 2020.

AstraZeneca is working on strengthening its oncology product portfolio and has several candidates in its pipeline. Oncology sales now comprise almost 20% of total product sales for AstraZeneca and rose 19% in 2017. The company’s target is to launch at least six new oncology medicines between 2014 and 2020, with Lynparza, Tagrisso, Imfinzi and Calquence already launched. The immuno-oncology therapeutic area is presently attracting a lot of interest and represents huge commercial potential.

Apr 19, 2018


Target Price/Valuation

Rating DistributionPositive 87.5%↑Neutral 12.5%↓Negative 00.0%Avg. Target Price (in $) $38.85↑High $42.00Low $37.00↑No. of firms with target price/Total 4/8

Recent Events

AstraZeneca Beats on Q4 Earnings, Guides for 2018 – Feb 02

AstraZeneca reported 4Q17 core earnings of 65 cents per American Depositary Share (ADS), beating the Zacks Consensus Estimate of 45 cents per share. Core earnings increased 13% y/y at constant currency rates (CER). Higher product sales boosted profits in the quarter.

Total revenues rose 2% at CER to $5.78 billion in the reported quarter. Revenues beat the Zacks Consensus Estimate of $5.59 billion. Revenue growth, however, was partially offset by decrease in externalization revenues.

The key growth platforms (representing 68% of total revenue) were up 12% in the quarter at CER. Among the key growth platforms, Emerging Markets, New Cardiovascular & Metabolic Diseases (CVMD), New Oncology and Japan performed well in the quarter. Product sales rose 3% in the quarter to $5.49 billion due to better performance of new products, partially offset by lower sales of legacy products.

2017 Performance

Product sales declined 5% to $20.15 billion, primarily due to generic competition for Crestor and Seroquel XR and pricing pressure for Symbicort in the United States. European markets witnessed a 7% decline in sales to $4.75 billion. Revenues from Emerging Markets were up 8% to $6.15 billion, primarily on the back of strong growth in China (up 15% to $2.96 billion). In Established ROW market, sales were flat at $3.08 billion.


Revenue

According to the company, total revenues rose 2% y/y to $5.78 billion in 4Q17. Higher product revenues were partially offset by decrease in externalization revenues. Product sales rose 3% to $5.49 billion while externalization revenues came in at $290 million, down 12% from the year-ago period. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

U.S. revenues rose 9% to $1.77 billion primarily due to strong Tagrisso and Brilinta sales, partially offset by decreased sales of Crestor and Seroquel XR due to generic competition and of Symbicort due to pricing pressure. Revenues from Emerging Markets were up 9% to $1.63 billion, primarily on the back of strong growth in China (up 30% to $813 million). However, European markets witnessed a 9% drop in sales to $1.29 billion. In Established ROW market, sales were flat at $794 million.

2018 Outlook: AstraZeneca expects revenues to grow in low single digit percentage in 2018.

Revenue ($ in million) 4Q16A 2016A 2Q17A 3Q17A 4Q17A 2017A 2018E 2019ETotal Revenue $5,585.0 $23,002.0 $5,051.0 $6,232.0 $5,777.0 $22,465.0 Digest High $5,585.3 $23,002.4 $5,051.0 $6,232.0 $5,777.4 $22,465.4

Digest Low $5,584.5 $23,002.0 $5,051.0 $6,232.0 $5,776.0 $22,465.0

Specific Products

Infection, Neuroscience and Gastrointestinal

Nexium (esomeprazole magnesium)

Indications: Treatment of acid-related diseases like gastroesophageal reflux disease and gastric ulcers among others.

Product Life Cycle Status: Marketed; generics available.

Partners: AstraZeneca has an agreement with Daiichi Sankyo for the co-promotion and supply of Nexium in Japan. AstraZeneca will manufacture and develop the product, and Daiichi Sankyo will be responsible for its distribution post approval.

Sales: According to the company, total Nexium sales were $427 million (down 12%) in 4Q17, with U.S. sales down 58% to $57 million due to loss of exclusivity in 2015. However, sales in Europe increased 11% to $72 million. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Additional Indication: Stress ulcer prophylaxis (phase III completed). The drug is under review in China.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Nexium Sales $2,032.0 $1,952.0 –


Synagis (palivizumab)

Indication: Prevention of serious lower respiratory tract disease caused by the respiratory syncytial virus in children.

Safety Issues: The most serious adverse reactions occurring with Synagis treatment are anaphylaxis and other acute hypersensitivity reactions.

Product Life Cycle Status: Marketed.

Partner: AbbVie holds rights to Synagis outside the United States

Sales: Synagis sales came in at $234 million in 4Q17, down 23% y/y. Sales in the United States came in at $135 million, down 12% due to lower eligible patient population per the guidelines of the American Academy of Pediatrics Committee on Infectious Diseases. Sales in Europe were $99 million, down 33%. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Synagis Sales $677.0 $687.0 –

FluMist/Fluenz (influenza vaccine live)

Indication: Intra-nasal spray for influenza disease caused by influenza A sub-type viruses and type B viruses in patients between 2 to 49 years of age.


Sales: FluMist/Fluenz generated sales of $58 million, down 18% y/y in 4Q17. The drug generated no sales in the United States due to recommendation from US Centers for Disease Control and Prevention about not using the drug for 2017-18 influenza season. Sales in Europe came at $58 million, up 25% due to strong demand, reflecting favorable impact of the UK National Immunisation Programme. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Partner: Daiichi Sankyo holds rights to Fluenz Tetra/FluMist Quadrivalent in Japan.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)FluMist/Fluenz Sales $104.0 $78.0 –

Seroquel (quetiapine fumarate; XR – extended release; IR – immediate release)

Indication: Schizophrenia, bipolar disorder and major depressive disorder.

Safety Issues: The label carries a warning regarding increased mortality in elderly patients with dementia-related psychosis and risk of suicidal thoughts and behavior in adolescents and young adults among others.

Product Life Cycle Status: Marketed, generics available.

Sales: Seroquel XR sales were down 9% y/y to $108 million in 4Q17, comprising U.S. sales of $72 million (up 1%) and Europe sales of $17 million (down 39%). The decline was due to generic competition. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Seroquel XR Sales $735.0 $332.0 –


Losec/Prilosec (omeprazole)

Indications: Acid-related diseases.


Sales: Losec/Prilosec sales were $69 million in 4Q17, up 14% y/y. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Losec/Prilosec Sales $276.0 $271.0 –

Movantik/Moventig (naloxegol)

Indication: Approved for opioid-induced constipation (OIC) in adults with chronic non-cancer pain and also for adults with OIC who have had an inadequate response to laxative(s).


Sales: Movantik/Moventig sales were $30 million in 4Q17, up 15% y/y. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Partners: Nektar Therapeutics and Daiichi Sankyo (co-commercialization agreement for the United States).

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Movantik/Moventig Sales $90.0 $122.0 –

CV and Metabolic Diseases

Crestor (rosuvastatin calcium)

Indication: Dyslipidemia including hypercholesterolemia (high cholesterol). Also approved for slowing progression of atherosclerosis and reducing the risk of first CV events.

Safety Issues: Crestor’s label includes a warning about jaundice, which is a rare side effect and mentions the risk of rhabdomyolysis (a muscle wasting condition). Both warnings are for the highest dose (40 mg).


Sales: According to the company, Crestor sales declined 7% y/y to $594 million in 4Q17 due to a sharp decline in European sales. Crestor U.S. sales of $127 million rose 34% y/y. Sales in Europe were down 32% to $152 million as multiple generic versions of the drug entered the market. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Crestor Sales $3,401.0 $2,365.0 –


Seloken/Toprol-XL (metoprolol succinate)

Indication: Hypertension, heart failure and angina.

Safety Issues: The label contains a black box warning for ischemic heart disease patients.


Partners: AstraZeneca signed an agreement with Italian company Recordati S.p.A in May 2017, granting the latter commercial rights to Seloken and Logimax combination therapy in Europe. Recordati will pay an upfront payment of $300 million and tiered royalties on future sales.

Sales: Total sales of Seloken/Toprol-XL were $168 million in 4Q17, down 7% y/y. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Seloken/Toprol-XL Sales $737.0 $695.0 –

Atacand/Atacand HCT/Atacand Plus (candesartan cilexetil)

Indication: First-line treatment of hypertension and symptomatic heart failure.


Sales: Atacand sales amounted to $73 million in 4Q17, down 10% y/y. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Partners: ANI Pharmaceuticals

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Atacand Sales $315.0 $300.0 –

Brilinta/Brilique (ticagrelor)

Indication: For the reduction of the rate of CV death, myocardial infarction (MI) and stroke in patients suffering from acute coronary syndrome (ACS) or with a previous history of MI. Brilique has also been approved for the treatment of patients who have suffered a heart attack at least one year ago and are at high risk of developing a further atherothrombotic event.


Sales: Brilinta/Brilique sales were $299 million in 4Q17, up 24% y/y. Sales increased 47% to $154 million in the United States and 15% to $82 million in Europe. Sales in emerging markets fell 8% to $49 million. Brilinta remained the branded oral anti-platelet market leader in the United States. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Patents/Generics: AstraZeneca has filed patent infringement lawsuits against several companies looking to gain FDA approval for their generic versions of Brilinta.

Additional Indications: Brilinta is being evaluated for type II diabetes and coronary artery disease, but in patients without a previous history of MI or stroke (outcomes studies – THEMIS and THALES –data as well as regulatory filings in both the United States and EU expected in 2019 and 2020, respectively). Moreover, Brilinta is being evaluated for the prevention of vaso-occlusive crises in pediatric patients with sickle cell disease (HESTIA – United States and EU filings expected in 2021).


Additional Data: On Feb 07, 2018, AstraZeneca announced results from a new sub-analysis of data from the phase III PEGASUS-TIMI 54 study showing a 19% risk reduction in MACE (the composite of CV death, myocardial infarction, or stroke) and of 36% in coronary death from treatment with Brilinta compared to placebo in patients taking low-dose aspirin but still at high risk of an atherothrombotic event, a major cause of acute coronary syndrome and CV death.

Competitor: Eli Lilly’s Effient.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Brilinta/Brilique Sales $839.0 $1,079.0 –

Onglyza (saxagliptin)

Indication: Type II diabetes.

Safety Issues: In August 2015, the FDA raised concerns regarding DPP-4 inhibitors, including Onglyza and Kombiglyze XR, and warned patients that its use may result in severe and disabling joint pain. In early Apr 2016, AstraZeneca received communication from the FDA on proposed label changes related to a potential risk of an increase in heart failure in the SAVOR (Saxagliptin Assessment of Vascular Outcomes Recorded in Patients with Diabetes Mellitus) outcomes study on Onglyza.


Sales: Revenues from Onglyza came in at $180 million in 4Q17, up 19% y/y. Sales in the United States rose 43% to $103 million while sales were down 17% to $26 million in Europe due to adverse pressure on the DPP-4 class drugs. Sales in emerging markets were up 13% to $37 million supported by strong uptake in China as the drug entered NRDL. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Competitors: Merck’s Januvia and Eli Lilly’s Tradjenta.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Onglyza Sales $720.0 $611.0 –

Farxiga/Forxiga (dapagliflozin)


Safety Issues: The FDA and the European Medicines Agency have raised concerns, in the past,regarding SGLT2 inhibitors (including Farxiga) and warned patients that its use may result in ketoacidosis – a serious condition where the body produces high levels of blood acids called ketones.


Sales: According to the company, Farxiga/Forxiga sales were $332 million in 4Q17, up 37% y/y. Sales in the United States were up 15% to $150 million, supported by CV benefit data from landmark CVD-REAL study. Sales in Europe rose 31% to $71 million due to continued uptake. The drug registered growth in sales of 76% to $72 million due to ongoing launches and improved patient access. The Zacks Digest average 4Q17 revenues were in line with the company’s report.


Additional Indications: AstraZeneca is evaluating the impact of Farxiga on CV risk/benefit in a large CV outcomes study (DECLARE- TIMI 58) with a final analysis expected in the second half of 2018 (United States and EU filing expected in 2020). Two other studies – DAPA-HF and DAPA-CKD – are evaluating the impact of Farxiga on CV risk/benefit in patients with heart failure and CKD, respectively.

AstraZeneca announced two new randomized, placebo-controlled phase IIIb outcome studies on Farxiga in September 2016. These two large outcome studies will evaluate Forxiga for the management of chronic kidney disease and chronic heart failure respectively, in patients with and without type-II diabetes.

In addition, Farxiga is in phase III development for type I diabetes (United States and EU filings expected in 2018).

On Mar 05, 2018, AstraZeneca announced that the European Medicines Agency has accepted the Marketing Authorization Variation for the label expansion of Forxiga. The company is seeking approval of the drug as an oral adjunct treatment to insulin in type-I diabetes patients.

Competitor: Johnson & Johnson’s Invokana.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Farxiga/Forxiga Sales $835.0 $1,074.5 –

Qtern (Onglyza/Farxiga)

Indication: For the treatment of adults with type II diabetes for the improvement of glycemic control when metformin and/or sulphonylurea and one of the mono-components of Qtern alone do not provide adequate control, or when a patient is already being treated with the free combination Onglyza and Farxiga.

Importance: Qtern is the first DPP4i/SGLT-2i combination product to be approved in Europe.

Partner: Bristol-Myers Squibb

Product Life Cycle Status: Approved in the United States and the EU.

Sales: According to the company, Qtern sales were $5 million in 4Q17.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Qtern Sales


Bydureon (exenatide XR)



Regulatory Update: On Mar 03, 2018, the FDA approved expanded use of Bydureon for injectable suspension as an add-on therapy to basal insulin for treating type II diabetes in patients receiving one or more antidiabetic medicines.

Sales: According to the company, sales of Bydureon were $147 million in 4Q17, up 2% y/y. Sales in the United States were $115 million, up 1% partly due to market growth, while sales in Europe declined 8% to $23 million due to increased competition. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Additional Formulation: Bydureon BCise, a once-weekly suspension of Bydureon for auto injection was approved by the FDA on Oct 23, 2017. A similar application is under review in EU with decision expected in the second half of 2018.

Additional Studies: Bydureon is currently in a CV outcomes study (EXSCEL) scheduled to complete in 2018 with the United States and EU filing also slated for 2018.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Bydureon Sales $578.0 $574.0 –

Byetta (exenatide)



Sales: According to the company, Byetta sales were $48 million in 4Q17, down 13% y/y. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Patents/Generics: AstraZeneca announced the settlement of patent litigation with Teva for Byetta granting a license to Teva to manufacture and commercialize the generic version of Byetta in the United States beginning Oct 15, 2017 or earlier, under certain circumstances.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Byetta Sales $254.0 $176.0 –


Lokelma (ZS-9, sodium zirconium cyclosilicate)

Indication: Hyperkalaemia

Product Life Cycle Status: Approved in the EU in March 2018. The drug is under review in the United States.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Lokelma Sales –

Oncology

Iressa (gefitinib)

Indication: First-line treatment of patients with metastatic non-small cell lung cancer (NSCLC) whose tumors have epidermal growth factor receptor (EGFR) exon 19 deletions or exon 21 (L858R) substitution mutations as detected by an FDA-approved test.


Sales: Iressa sales came in at $130 million in 4Q17, up 8% y/y due to strong growth in emerging markets especially in China. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Iressa Sales $513.0 $525.0 –

Faslodex (fulvestrant)

Indication: Treatment of hormone receptor-positive (HR+) metastatic breast cancer for post-menopausal women whose disease has spread following treatment with an antioestrogen medicine and in combination with Ibrance (in EU) or Verzenio (in the United States) for the treatment of HR+, human epidermal growth factor receptor 2 negative (HER2-) advanced or metastatic breast cancer in women whose cancer has progressed after endocrine therapy; first-line treatment for postmenopausal women with HR+ advanced breast cancer.


Sales: Faslodex sales were $238 million in 4Q17, up 5% y/y. U.S. sales increased 6% to $124 million due to continued uptake in combination with Pfizer’s Ibrance. Sales in Europe decreased 3% to $62 million due to generic competition. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Faslodex Sales $830.0 $941.0 –


Arimidex (anastrozole)

Indication: Advanced breast cancer in postmenopausal women.


Sales: Arimidex sales were $57 million in 4Q17, down 2% y/y. Lower sales in the U.S. and EU markets were offset by strong growth in emerging markets. The Zacks Digest average 4Q17 revenues were in line with the company’s report.


$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Arimidex Sales $232.0 $217.0 –

Casodex/Cosudex (bicalutamide)

Indication: Advanced prostate cancer.

Product Life Cycle Status: Mature; generics available.

Sales: Casodex sales were $54 million in 4Q17, down 8% y/y. The majority of the sales came from emerging markets. The Zacks Digest average 4Q17 revenues were in line with the company’s report.


$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Casodex Sales $247.0 $215.0 –

Lynparza (olaparib)

Indication: Maintenance treatment of platinum-sensitive recurrent ovarian cancer regardless of BRCA-mutation status; BRCA-mutated, HER2-/HR+ breast cancer. Available in tablet and capsule formulations.


Regulatory Update: On Mar 03, 2018, AstraZeneca along with partner Merck announced that the European Medicines Agency has accepted the marketing authorization application seeking approval of Lynparza in patients with HER2-negative metastatic breast cancer, harboring germline BRCA mutations.

On Feb 23, 2018, the CHMP of the EMA gave a positive opinion recommending approval of Lynparza tablets for use as a maintenance therapy in platinum-sensitive relapsed ovarian cancer, regardless of patients’ BRCA mutation status.

On Jan 19, 2018, Lynparza was approved by the Japanese Ministry of Health, Labour and Welfare as a maintenance therapy for relapsed ovarian cancer, irrespective of BRCA mutation status in Japan.

On Jan 12, 2018, the FDA approved Lynparza to treat previously treated (chemotherapy) patients with HER2-negative metastatic breast cancer, harboring germline BRCA mutations. Moreover, the drug is also approved in patients with HR+ breast cancer who were treated with an endocrine therapy or were ineligible for the same.


Importance: The first approved PARP-inhibitor for treating metastatic breast cancer. Lynparza enjoys Breakthrough Therapy status by the FDA for the treatment of prostate cancer.

Sales: According to the company, Lynparza sales came in at $100 million in 4Q17, up 58% y/y. U.S. sales grew 74% to $54 million while sales in Europe were up 32% to $36 million. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Ongoing Studies: AstraZeneca is evaluating Lynparza in several additional studies for the first- (phase III/SOLO-1 with data expected in 2H18) and third-line (phase III/SOLO-3 with data expected in 2H18) treatment of BRCA-mutated ovarian cancer.

A phase III study, PAOLA, is evaluating Lynparza in combination with Roche’s Avastin as maintenance therapy for first line ovarian cancer with first data expected in 2022. Three mid-stage studies are evaluating Lynparza combination regimens in advanced stages of ovarian cancer, lung cancer, breast cancer, gastric cancer and prostate cancer.

Additional Indications: AstraZeneca is working on expanding Lynparza’s label further. Lynparza is being developed for several additional indications like adjuvant negative breast cancer (phase III/OlympiA with data expected in 2020), pancreatic cancer (phase III/POLO with data expected in 2018) and metastatic castration resistant prostate cancer (phase III/PROfound). The firms are positive on Lynparza’s potential beyond ovarian cancer.

Partners: On Jul 27, 2017, AstraZeneca announced that it has entered into a global strategic oncology collaboration with Merck to co-develop and co-commercialize AstraZeneca’s Lynparza (olaparib) for multiple cancer types. The drug will be developed as monotherapy as well as in combination with Imfinzi and Keytruda.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Lynparza Sales $217.6 $297.0 –

Tagrisso (osimertinib)

Indication: An EGFR-tyrosine kinase inhibitor therapy approved for the second-line treatment of metastatic EGFR T790M mutation-positive NSCLC.

Importance: It is the only drug to be approved for this indication. Tagrisso enjoys Breakthrough Therapy and Orphan Drug in the United States


Sales: According to the company, Tagrisso sales came in at $304 million in 4Q17, up 105% y/y. U.S. sales increased 73% to $128 million with progress in T790M-mutation testing rates and updated NCCN guidelines including Tagrisso as first-line treatment (yet to be approved). Sales in Europe rose 115% to $63 million driven by continued uptake and positive reimbursement. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Regulatory Updates: In November 2017, label expansion applications of Tagrisso (osimertinib) for the first-line treatment of adult patients with locally-advanced or metastatic NSCLC whose tumors have EGFR mutations were submitted in Europe and Japan. Decisions are expected in the second half of 2018. Moreover, in December 2017, a similar application was accepted by the FDA with a decision expected in the first half of 2018.


Ongoing Studies: Tagrisso is being evaluated in ADAURA phase III study in NSCLC for the adjuvant setting and the metastatic first-line setting, including patients with brain metastases, as well as in combination with other treatments.

Additional Data: On Jul 27, 2017, the company announced data from the FLAURA phase III study for the first-line use of Tagrisso in EGFR-mutated NSCLC. Data demonstrated that Tagrisso reduced the risk of progression or death by more than half compared with other commonly-used EGFR inhibitors.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Tagrisso Sales $423.0 $955.0

Imfinzi (Durvalumab)

Indications: A PD-L1 human monoclonal antibody received accelerated approval from the FDA in May 2017 for the treatment of patients with locally advanced or metastatic urothelial carcinoma (bladder cancer) whose disease has progressed during or after one standard platinum based regimen.

Product Life Cycle: Marketed in the United States.

Importance: On Jul 31, 2017, AstraZeneca announced that the FDA has granted Breakthrough Therapy Designation to Imfinzi for patients with locally-advanced unresectable non-small cell lung cancer whose disease has not progressed following platinum-based chemoradiation therapy.

Regulatory Update: On Feb 19, 2018, the FDA approved label expansion for Imfinzi in locally-advanced unresectable non-small cell lung cancer whose disease has not progressed following concurrent platinum-based chemotherapy and radiation therapy. The drug is under review for a similar indication in Europe.

Sales: Imfinzi generated sales of $18 million in 4Q17.

Ongoing Studies: AstraZeneca currently has more than 20 ongoing studies on durvalumab either alone or in combination with other immuno-oncology agents and targeted therapies across different types of cancer including lung, gastric, pancreatic, hepatocellular carcinoma and blood cancers.

New Data: On Mar 12, 2018, AstraZeneca announced that final overall survival data from the pivotal phase III MYSTIC study, evaluating Imfinzi in first-line lung cancer will be presented in the second half of 2018, instead of the first half as expected previously. Initial data announced in July 2017 demonstrated that the drug did not improve progression-free survival when compared to platinum-based chemotherapy.

Partner: On Oct 31, 2017, AstraZeneca announced that it has entered into an agreement with Incyte to conduct a phase III study to evaluate Incyte’s epacadostat, an IDO inhibitor, in combination with Imfinzi, compared to Imfinzi alone in patients with locally-advanced unresectable NSCLC whose disease has not progressed following platinum-based chemotherapy concurrent with radiation therapy (CRT). The study is expected to begin in the first half of 2018. The study will be funded by both the companies and will be conducted by AstraZeneca.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Imfinzi Sales - $18.6


Calquence (acalabrutinib)

Indication: Accelerated approval for mantle cell lymphoma (MCL), an aggressive form of blood cancer, in second or later line setting

Product Life Cycle Status: Approved in the United States in October 2017

Importance: Orphan drug designation was granted in the United States in September 2015 and in Europe in March 2016

Sales: Calquence generated sales of $3 million in 4Q17.

Ongoing Studies: A phase III study, ACE-LY-308, is evaluating Calquence in combination with bendamustine and rituximab as a potential 1st-line treatment for MCL.

AstraZeneca is also developing Calquence in several cancer indications including multiple B-cell malignancies, chronic lymphocytic leukaemia (CLL), Waldenström macroglobulinaemia (WM), follicular lymphoma, diffuse large B-cell lymphoma, and multiple myeloma.

Competitor: AbbVie’s Imbruvica

Respiratory, Inflammation and Autoimmunity

In Mar 2015, AstraZeneca acquired the rights to Allergan’s branded respiratory business including Tudorza Pressair/Eklira Genuair, Daliresp and Duaklir Genuair among others in the United States and Canada.

Symbicort/Symbicort Turbuhaler/SMART (budesonide/formoterol)

Indication: Asthma and chronic obstructive pulmonary disease (COPD).

Product Life Cycle Status: Marketed. Symbicort pressurised metered dose inhaler device has been approved in the EU.

Partners: AstraZeneca and Astellas have an agreement for the co-promotion of Symbicort for the treatment of bronchial asthma in Japan (marketed since Oct 2009). According to the agreement, AstraZeneca and Astellas will co-promote Symbicort Turbuhaler and Astellas will be responsible for the distribution of the product.

Sales: According to the company, total Symbicort sales remained flat y/y at $752 million in 4Q17. Sales in the United States came in at $288 million, up 1% y/y, while in Europe sales declined 7% y/y to $229 million due to pricing pressure. Emerging markets sales rose 17% to $117 million driven by growth in China. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Additional Indications: Symbicort is being studied for mild asthma in two phase III studies – SYGMA1 and SYGMA2. Meanwhile, AstraZeneca is also developing Symbicort to be used as a breath actuated inhaler for both asthma and COPD. Regulatory filing in the United States is slated for 2018.

Competitors: Glaxo’s Advair.

Partners: Astellas Pharma in Japan

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Symbicort Sales $2,989.0 $2,803.0 –


Pulmicort Respules/Pulmicort Turbuhaler/Flexhaler (budesonide)

Indication: Asthma.


Sales: Total Pulmicort sales were $371 million in 4Q17, up 26% y/y. Sales in the United States were up 26% to $49 million while in Europe sales were down 4% to $26 million. Emerging markets were the main growth driver for the drug where sales grew 34% to $269 million. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Pulmicort Sales $1,061.0 $1,176.0 –

Tudorza/Eklira (aclidinium bromide)

Indication: COPD.


Sales: Total Tudorza/Eklira sales were $42 million in 4Q17, up 11% y/y. Sales in the United States increased 19% to $19 million. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

Additional Data: On Dec 4, 2017, AstraZeneca announced positive top-line data from a phase IV study evaluating Tudorza Pressair (aclidinium bromide 400 mg, twice-daily), for an expanded indication.

The phase IV ASCENT was conducted to expand the label Tudorza to include patients with chronic obstructive pulmonary disease (“COPD”) with cardiovascular risk factors. The post-marketing requirement (PMR) study was requested by the FDA and was conducted on a total of 3630 patients. The study met its primary efficacy and safety endpoints. Data from the study demonstrated that treatment with Tudorza led to a statistically significant reduction in the annual rate of moderate or severe COPD exacerbations compared with placebo.

A full evaluation of the ASCENT data is underway and further results will be presented at a forthcoming medical meeting. Based on positive ASCENT data, AstraZeneca expects to submit a supplemental new drug application (NDA) to the FDA to expand the label of Tudorza.

Partners: Circassia Pharmaceuticals

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Tudorza/Eklira Sales $170.1 $150.0 –


Daliresp/Daxas (roflumilast)

Indication: Severe COPD.

Importance: Daliresp is the only once-daily oral PDE4 inhibitor currently the only approved drug for COPD in the United States


Sales: Total Daliresp/Daxas sales came in at $53 million in 4Q17, up 27% y/y. Sales in the United States increased 30% to $43 million due to higher demand. The Zacks Digest average 4Q17 revenues were in line with the company’s report.

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Daliresp Sales $154.0 $198.0 –

Siliq (Brodalumab)

Indication: moderate-to-severe plaque psoriasis.

Product Life Cycle Status: Approved in the United States and EU

Partners: Valeant Pharmaceuticals in the United States and LEO Pharma in Europe

$ in million 2016A 2017A 2018E 2019E 2020E Est. Growth (17-’20)Siliq Sales –

Fasenra (benralizumab)

Indication: Add-on maintenance treatment for severe asthma in patients 12 years and older with an eosinophilic phenotype

Administration: A fixed-dose subcutaneous injection via a prefilled syringe, once in every eight weeks

Importance: Fasenra is the first respiratory biologic medicine to be approved with the convenient 8-week maintenance dosing schedule.

Product Life Cycle Status: Fasenra was approved by the FDA on Nov 14, 2017. On Jan 10, 2018, the European Commission approved Fasenra. Moreover, on Jan 19, 2018, Fasenra received approval for treating bronchial asthma in Japan.

Ongoing Studies: Fasenra is also being evaluated in the phase III program for the treatment of patients with severe COPD (both data and regulatory filings in the United States and the EU are expected in 2018).


Pipeline

AstraZeneca is focused on therapeutic areas like respiratory, inflammation and autoimmunity, CV and metabolic diseases, and oncology. As of Dec 31, 2017, the company had 11 new molecular entities in phase III or under regulatory review. Some important pipeline candidates are discussed below.

Selumetinib: Selumetinib (MEK inhibitor) is being evaluated in a phase III study (ASTRA) for the treatment of adjuvant differentiated thyroid cancer (regulatory filings in both the United States and the EU are expected in 2018), a phase II study of pediatric and adolescent patients with neurofibromatosis type I and in phase I/II studies in combination with other treatments across a range of tumor types. Selumetinib enjoys Orphan Drug status in the United States for the adjuvant treatment of patients with stage III or IV differentiated thyroid cancer. AstraZeneca had acquired exclusive worldwide rights to selumetinib from Array BioPharma in 2013. AstraZeneca is developing selumetinib in collaboration with Merck. On Feb 15, 2018, the FDA granted orphan drug designation to selumetinib for the treatment of neurofibromatosis type I.

AZD3293: AZD3293 is an oral, potent and selective small molecule inhibitor of beta secretase cleaving enzyme (BACE) inhibitor that is being developed in collaboration with Eli Lilly in a phase II/III study (AMARANTH) for the treatment of early Alzheimer’s disease. In addition, AZD3293 is also being evaluated in a phase III study (DAYBREAK-ALZ) in patients with mild Alzheimer's disease. AZD3293 has been granted Fast Track status by the FDA.

Anifrolumab: Anifrolumab is a monoclonal antibody that blocks the type I interferon (IFN) receptor, thereby inhibiting the activity of all type I IFNs, which play a central role in lupus pathophysiology. The candidate is currently in phase III development for systemic lupus erythematosus (SLE; regulatory filings in both the United States and the EU anticipated in 2019). Meanwhile, a subcutaneous administration of anifrolumab is being developed in a phase I study. Apart from SLE, it is also being evaluated for the treatment of lupus nephritis in a phase II study. Anifrolumab enjoys Fast Track status in the United States for SLE.

Tezepelumab: Tezepelumab is a monoclonal antibody that blocks thymic stromal lymphopoietin (TSLP), which causes inflammation in asthma. AstraZeneca is developing the candidate in collaboration with Amgen. Data from a phase IIb study, PATHWAY, presented at the 2017 European Society of Cardiology congress demonstrated significant and clinically-meaningful annual asthma exacerbation-rate reductions of 61%, 71% and 66% in patients receiving either 70mg or 210mg every four weeks or 280mg every two weeks, respectively. Tezepelumab also improved lung function at all doses and asthma control at the two higher doses. A phase III PATHFINDER study was initiated in collaboration with Amgen in November 2017. Another phase III NAVIGATOR study is evaluating tezepelumab in adults and adolescents with severe uncontrolled asthma. A phase II study is evaluating tezepelumab in atopic dermatitis.

However, in the third quarter of 2017, tezepelumab failed to meet primary endpoint in the phase IIa ALLEVIAD study. The study evaluated tezepelumab in moderate-to-severe atopic dermatitis as add-on treatment to regular medium-to-high strength topical glucocorticosteroids.

Roxadustat: Roxadustat is currently being developed as a treatment for anemia in patients with chronic kidney disease in collaboration with FibroGen Inc. An NDA has been submitted in China seeking approval in anemia based on data from two phase III studies, which met the primary endpoint. A regulatory submission in United States is planned in the second half of 2018.

PT010: PT010 is a single inhaler, fixed-dose triple combination therapy of budesonide, an ICS with glycopyrronium, a LAMA, and formoterol fumarate, a LABA. The candidate is currently being developed in a phase III program including four studies – ETHOS, KRONOS, TELOS and SOPHOS – for the treatment of COPD.


On Jan 26, 2018, the company announced positive top-line results from KRONOS study. The KRONOS study compared PT010 to dual combination therapies — Bevespi, Symbicort Turbuhaler and PT009.

The study demonstrated PT010’s efficacy in improving lung function compared to the dual combination therapies. The study showed significant improvement compared with dual combination therapies in six out of nine lung function primary endpoints. The study was based on forced expiratory volume in one second (FEV1) assessments in patients with moderate to very severe COPD. The company will present the KRONOS trial results at a forthcoming medical meeting. A regulatory submission is expected in the second half of 2018.

Please refer to the Zacks Research Digest spreadsheet on AZN for further details on revenue.

Margins

According to the company, core gross margin was down 10 basis points to 79.4% in 4Q17. Core R&D expenditure declined 4% to $1.46 billion in 4Q17. Moreover, core SG&A expenses were up 5% y/y to $2.18 billion due to launch initiatives. The Zacks Digest average R&D and SG&A expenses were in line with the company’s report while the Zacks Digest average gross margin was 84.5%.

Margins 4Q16A 2016A 2Q17A 3Q17A 4Q17A 2017A 2018E 2019EGross 85.5% 89.7% 84.5% 104.0% 88.1% 91.7%

Operating 38.5% 31.5% 31.3% 38.0% 32.6% 34.0%

Pre-tax 35.0% 28.3% 27.4% 34.1% 30.1% 30.5%

Net 29.1% 25.6% 22.5% 29.0% 33.4% 26.9%

Please refer to the Zacks Research Digest spreadsheet on AZN for more details on margins.

Earnings per ADS

According to the company, core earnings were 65 cents per ADS in 4Q17, up 13% y/y. Higher product sales boosted profits in the quarter. The Zacks Digest average 4Q17 core earnings were in line with the company’s report.

AstraZeneca provided EPS guidance for 2018, which is expected in the range of $1.65 to $1.75 per ADR.

EPS 4Q16A 2016A 2Q17A 3Q17A 4Q17A 2017A 2018E 2019EDigest High $1.21 $4.31 $0.88 $1.12 $1.30 $4.29 Digest Low $1.21 $4.31 $0.86 $1.12 $1.28 $4.27 Digest Average $1.21 $4.31 $0.87 $1.12 $1.30 $4.28

Please refer to the Zacks Research Digest spreadsheet on AZN for more details on EPS.

DISCLOSURE

Analyst Indrajit BandyopadhyayCopy EditorContent Editor Debasmita BanerjeeLast updated by Indrajit BandyopadhyayLead Analyst Kinjel ShahQCA Kinjel ShahReason for Update 4Q17 Earnings Update


This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

DISCLOSURE


DISCLOSURE


DISCLOSURE


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