Is AstraZeneca set for new record with Covid-19 treatment?

Little-known second treatment due next year and could mean hefty profits for the pharmaceutical giant.

AstraZeneca (LSE:AZN) shares are being backed for a new record after a leading City bank analysed prospects for the pharmaceutical giant's lesser-known potential Covid-19 treatment.

Morgan Stanley thinks the shares could reach 9,900p, which compares with the high of 9,320p at the time of half-year results in July and the bank's own previous estimate of 9,400p.

The FTSE 100 heavyweight was trading at 8,024p today after a recent sell-off for the pharmaceutical sector. This comes amid the rotation towards value stocks triggered by recent vaccine breakthroughs, including Astra's own jab being developed with the University of Oxford.

Whereas the Oxford vaccine is likely to be sold at cost, Morgan Stanley believes Astra's separate AZD7442 long-acting antibody Covid-19 therapy has the potential to deliver a significant revenues boost of up to $3 billion (£2.25 billion) next year.

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It is being aimed at people who may not be able to have a vaccination or for high-risk populations where additional protection from the virus may be needed.

The bank's forecasts are based on one million doses being distributed at a price of $2,000 per course of treatment in the US, and about half that price in the UK and elsewhere. Trial results are due early next year, but distribution agreements have already been signed with US and UK governments.

Astra is unlikely to include AZD7442 in its future guidance, however, with Morgan's analysts drawing parallels with how Roche guided without Tamiflu pandemic sales in 2009. 

Driven by strength and diversification across the rest of the portfolio, they expect Astra to deliver 9% sales growth and 19% earnings per share growth over the next five years. Its short-term forecasts are also 8% higher than the current consensus.

The forecasts are based on the growth prospects for lymphoma treatment Calquence and heart failure drug Farxiga, as well as higher collaboration revenues such as from milestone payments for cancer drug Lynparza. This should offset higher operating expenditure.

A continued drag from Covid-19 represents a downside risk to sales forecasts, but Morgan thinks the successful development of AZD7442 could increase 2021 earnings by 30%.

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The bank said:

“Reflecting the depth of the organic pipeline and the importance of revenue diversification over the coming years, we have raised our price target to £99 a share and our recommendation to overweight”.

That's positive news for interactive investor customers, who made Astra the seventh most-bought stock on our platform during November's stunning month for the FTSE 100 index.

Excitement created by developed new medicines and growing cancer drug sales has fuelled a re-rating of the shares in the past year or two. They were at 5,300p at the start of 2019.

Astra is now trading on a forward price/earnings (PE) ratio of over 25, compared to a 10-year average of less than 15 and a forward PE of below 15 at rival GlaxoSmithKline (LSE:GSK). The dividend yield is more reflective of growth, although still attractive at around 2.5% on a forward estimate basis.

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