The US Food and Drug Administration (FDA) has said it doesn't currently authorise the use of Astra's Evusheld for the prevention of COVID-19.
This is due to the treatments' low effectiveness against the main COVID-19 variants currently in circulation in the US. If these strains fall below 90% of the strains in circulation, Evusheld's authorisation could be re-instated. The authorities have recommended that existing doses should be stockpiled.
Evusheld is a preventative treatment against COVID-19 for those with supressed immune systems, such as certain groups of cancer patients. The drug was commercially launched last year. In the first nine months of 2022, it contributed $1.5bn of Astra's $33.1bn total revenues.
Astra has started clinical studies of a similar treatment that may be more effective against current COVID strains.
The treatment remains authorised in other territories including the EU and Japan.
The shares were unmoved following the announcement.
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Our View
AstraZeneca is seeing its high value speciality medicines drive very strong growth. Excluding COVID-19 vaccines and therapies, it now has 11 blockbuster medicines generating annual sales of at least $1bn each.
Its cancer treatments include novel first in class therapies such as Lynparza, which is used for hard-to-treat cancers. Cancer treatments (about a third of sales) are a cornerstone of Astra's offering and sales have grown 24% this year so far. Often these drugs can maintain high growth levels for many years, as patient access improves, approvals are gained in new markets, and clinical trials prove their efficacy in additional diseases.
Biopharmaceuticals are currently the biggest contributor to revenue. These include the Vaccines and Immune Therapies groups which house Astra's COVID-19 medicines. Vaccine sales have fallen, but are generating higher profits than they were.
Evusheld, which treats some of the most vulnerable sufferers of COVID-19, provided an initial boost to revenues following its launch at the end of 2021. That's unlikely to continue, following the suspension of its authorisation in the USA. And since the news broke in early January of potential concerns around its effectiveness, Astra's valuation has come under pressure. We think the longer term investment case remains intact.
We view Astra's acquisition of Alexion as a big jump towards becoming a leading player in the lucrative rare diseases market. Astra is well placed to make further opportunistic acquisitions with two already under its belt in 2023.
Research and Development is the engine of Astra's long-term growth and it's good at it. Between its most recent half year and third year update, Astra enjoyed 19 Major regulatory approvals and there's likely to be more to come, with 18 Phase III read-outs expected in 2023. But this is a risky endeavour and there are no guarantees of Astra's success.
Net debt's sitting at under 2 times this year's forecasted cash profits, which isn't unmanageable. But with interest rates on the rise, we'd like to see debt levels come down. Especially given other demands on cash resources. The group's likely to put more money into research and development, as recent clinical results give it the confidence to launch additional late-stage clinical trials.
For now however, Astra is generating strong cash flows from its existing portfolio of marketed medicines. This also supports the modest dividend yield. Given the recent strong financial and clinical progress, it's no surprise that the valuation is not in bargain territory compared to the long-term average. But with earnings per share forecast by analysts to more than double between 2022 and 2024 we don't think that this position is overly demanding, as long as expectations are met of which there are no guarantees.
AstraZeneca key facts
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