ii view: AstraZeneca buoyed by Japanese heart drug approval

Despite the focus on its Covid vaccine, other developed drugs continue to glow. 

Heart drug approval

ii round-up:

Drug maker AstraZeneca (LSE:AZN) today announced Japanese approval of its Forxiga drug to treat patients with chronic heart failure.

This life-threatening disease prevents the heart from pumping sufficient levels of blood around the body, and it affects around 1.3 million people in Japan and around 64 million people globally.

AstraZeneca shares rose by 2% in UK trading and are up by around 4% year-to-date. Astra recently announced a 70% success rate for its Covid-19 vaccine being developed alongside Oxford University, or up to 90% for those given a half dose followed by a full one.

Forxiga, known as Farxiga in the US, is already approved in America, Europe, and several other countries around the world for the treatment of patients with heart failure. Forxiga is also being used to treat diabetes and hopes remain that it could also be used to help treat chronic kidney disease. 

Half of patients with heart failure will die within five years of diagnosis. It remains as fatal as some of the most common cancers such as prostate and bladder cancers in men and breast cancers for women. It is the leading cause of hospitalisation for those over the age of 65 and represents a significant clinical and economic burden.

Forxiga sits within Astra’s Cardiovascular, Renal and Metabolism (CVRM) arena of compounds. These sales rose by 6% to just under $1.2 billion in its latest third-quarter results to 30 September. Drug sales at its biggest product category - oncology, or cancer - rose by 13% year-over-year to $2.86 billion. 

Since 2013, Astra has been in an agreement with Ono Pharmaceutical to use it to distribute and market drugs in Japan. 

ii view:

AstraZeneca is a global, science-led biopharmaceutical company. It is focused on the discovery, development and commercialisation of prescription medicines. It remains on track for a third consecutive year of sales growth. Recent compound development success now sees new medicine sales accounting for 52% of overall revenues year-to-date, up from 42% in 2019. 

Sales of new CVRM drugs including Forxiga or Farxiga were up 7% year-to-date to $3.45 billion as of late September. This growing category of drugs represented nearly a fifth of overall sales. Cancer drugs, at over two-fifths of overall sales, provide for its biggest segment. While its Covid vaccine is not intended to generate near-term profits, it does significantly add to its brand status globally.

For investors, excitement created by developed new medicines and growing cancer drug sales has fuelled a re-rating of the shares. They now trade 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). As such, the dividend yield is now more reflective of growth, although arguably still attractive at around 2.5% on a forward estimate basis. In all, recent results and ongoing developments appear to justify the heightened valuation. 

Positives: 

• Oncology product sales account for over 40% of sales
• Attractive dividend (not guaranteed)

Negatives:

• Respiratory & immunology sales retreated by 12% in Q3
• Other medicine sales including those where patents have expired fell by 5%

The average rating of stock market analysts:

Buy