AstraZeneca PLC (LSE:AZN) shares have continued their underperformance from the final quarter of last year into January, with Barclays identifying three major debates around the stock ahead of this week's results.
Since hitting an all-time high above £128 per share last April, the shares have fallen more than 19% and in the fourth quarter underperformed the Stoxx Europe 600 health sector by around 6%.
The bank noted that this was "due to concerns about next year's numbers being too high", which is a trade that has frequently hit shares in the Anglo-Swedish drugs giant in the lead-up to annual results in previous years.
However, having spoken to many investors in the run-up to the results, Barclays said the seems to be no prevailing consensus view, with "a fair number of bulls and bears alike" among institutional investors.
The three key debates are whether chief executive Pascal Soriot will back away from current margin ambitions; whether new cancer drug Dato-DXd will be approved in second-line non-small cell lung cancer (NSCLC) by the US regulator and if so when; and exposure to the redesign of the prescription drug coverage component of Medicare, 'Part D'.
On the margin ambition debate, AZN has a long-standing ambition to reach mid-to-high 30s core operating margins over the mid-to-long term.
Questions have arisen about whether AZN might revise this target, especially after Soriot said the company could "consider adjusting" its operating margin target if it were to find other opportunities to supplement its target of industry leading growth after 2025.
Despite business development transactions at year-end 2023, the bank's analyst said there was "nothing that we'd characterize
as being substantive enough to result in a push-out to the margin targets" and they are happy with current forecasts.
On Dato-DXd, after the failure of competitor Gilead's EVOKE study, there was initial optimism for AZN's version, but concerns quickly resurfaced about its own study's outcomes and whether the US Food & Drug Administration would approve.
The TROPION-Lung01 study continues to collect overall survival (OS) data, with filing for FDA approval based on progression-free survival (PFS) expected by the end of the current quarter.
"We see no reason to take a negative read from EVOKE-01 and, all else equal, think this does bode well for Dato-DXd's commercialization, assuming it hits on OS and is approved."
On the Medicare Part D redesign, starting in 2024 with more significant changes in 2025, there have been concerns raised about its impact on AZN, particularly regarding its oral oncology drugs like Tagrisso, Calquence, and Lynparza, due to their high costs.
Part D constitutes 25-30% of AZN's total portfolio, with oral oncology drugs being above that average.
Barclays expect this to be a "major topic" on the conference call alongside this week's results, but at last summer's interim results company management noted that "with more enrollees expected to be able to access Tagrisso due to the redesign there would be offsets to the manufacturer's cost share, including likely less free drug to [charitable] foundations".
In other words, they expect more patients to be able afford the drug through Medicare, leading to less need for the manufacturer to donate it to those who can't afford it, potentially lowering the company's financial burden of providing free medication through charitable programs.