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AstraZeneca’s pipeline turnaround is “remarkable”, but potential is already priced in

Liberum’s Roger Franklin likes AstraZeneca, but thinks the current share price is fair, given the potential of the pipeline
astrazeneca building
Astra has been rebuilding its drugs pipeline in recent years after losing patents on a handful of its blockbusters

AstraZeneca PLC’s (LON:AZN) research and development turnaround has been “remarkable”, but it has already been priced into the shares, according to City broker Liberum.

That is why analyst and long-term Astra follower Roger Franklin has kept his ‘hold’ rating in place, when many of his peers have the drugs giant as a ‘buy’.

READ: AstraZeneca and Eli Lilly halt late-stage Alzheimer’s study as drug shows no sign of working

Franklin can see why other analysts are big fans of the stock, given the transformation of its pipeline over the past couple of years.

Bouncing back from patent expiries

Back then, the FTSE 100 drugmaker was one of the sector’s least loved stocks as it battled falling sales of some of its blockbusters which had lost their patents, namely Crestor (statin) and Seroquel (bipolar).

To make things worse, it had a dearth of new drugs coming through its pipeline to plug the gaps left behind.

But Astra has been rebuilding its pipeline since then, particularly its oncology offering (think Imfinzi, Tagrisso, Lynparza and calquence), while Fasenra (asthma) is also starting to rack up sales after its recent launch.

There are also other trials which are due to read out over the next few years, notably the MYSTIC, NEPTUNE and POSEIDON immuno-oncology studies and the ADJUVANT lung cancer trial. They are the ones which Franklin thinks have the potential to move the stock the most.

To justify moving to a ‘buy’ rating, Franklin reckons there would have to be a “disproportionate” amount of clinical success over the coming months and years.

Slight upgrade to PT

“There is a very wide range of possible outcomes for five-year earnings, depending on the key readouts,” read the analyst’s note to clients.

“In the unlikely event that the whole pipeline works, there is 33% upside to our base case in 2023 whilst there is 37% downside in the unlikely event it all fails.”

He has upped his price target slightly to 5,300p (from 5,000p), partly due to the weaker pound and increased optionality in early cancers.

Astra shares rose 0.9% to 5,410p on Wednesday morning.

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