AstraZeneca Transcends Brexit Woes on Pound Slump, Rival’s Flop

  • Shares rally 37% from June low as pound slumps on EU vote
  • Investors adding Astra ahead of Mystic trial data next year

AstraZeneca Plc, once deemed a laggard in the hot field of immuno-oncology, has rallied 37 percent since its June low with a stable of experimental cancer drugs suddenly gaining allure in the wake of a rival’s failure and speculation of a takeover.

The Brexit referendum first buoyed the stock as the pound slumped ahead of the U.K.’s likely departure from the European Union, reducing research and manufacturing costs for local companies like AstraZeneca, whose largest market is the U.S. The next month, Chief Executive Officer Pascal Soriot kindled takeover speculation when he touted the company’s prolific product pipeline -- offerings that were highlighted again last week when rival Bristol-Myers Squibb Co. reported a research setback.

“Astra is showing a bit of leg this year because of pipeline missteps by others,’’ said Daniel Mahony, a fund manager at Polar Capital LLP, who owns Astra stock. “It wouldn’t surprise me if the shares move up more from here. The pipeline is coming into view.’’

Also to Astra’s benefit, having the best data or being the first to sell a new treatment aren’t the only ways to win market share in the U.S. anymore, Mahony said. With pharmacy benefit managers like Express Scripts and CVS increasingly having a say in which drugs patients get access to, the ability to offer the best prices to payers, especially for costly combination products, could also determine success.

Opdivo Failure

Astra shares rose to a record last week, while Bristol-Myers plunged the most in 14 years after the U.S. company announced that its immune oncology drug Opdivo had failed in a lung cancer trial that would have been the basis for widely expanding use of the treatment. The U.K. drugmaker’s stock slumped 0.3 percent to 5,146 pence as of 9:28 a.m. local time on Friday.

With Bristol-Myers’s stumble, Astra got a leg up in the immune oncology race, where it has long been a laggard. Competitors Bristol-Myers, Merck & Co. and Roche Holding AG are already on the market with their checkpoint inhibitors, and Merck KGaA could file for approval of its drug this year, putting Astra in fifth place.

Astra is betting on its combination of immune oncology agents to give it an edge over competitors that have to work with other drugmakers to create combination treatments. It’s conducting a late-stage trial, called the Mystic study, of its immune oncology drug durvalumab, which is used in combination and also alone as a first-line treatment for patients with lung cancer. Securing an approval for such use would give the drugs a much wider potential market than Bristol-Myers’s Opdivo, which isn’t currently approved as a first-line therapy.

Mystic Trial Data

As fund managers position their portfolios for the coming year, Astra’s Mystic data, set to be announced in the first half of next year, could make its shares a compelling buy. Meanwhile, analysts at Citigroup Inc. published a note on July 27 calling Astra the “most attractive” acquisition target for Novartis AG to pursue, from among a field including Bristol-Myers and Incyte Corp.

“There’s a huge amount of potential pipeline value riding on the outcome of that clinical trial,” said Dani Saurymper, manager of the AXA Framlington Health Funds in London, who oversees $875 million in healthcare stocks. “Novartis would be taking on significant risk if they were to pursue an acquisition of AstraZeneca prior to the announcement of those clinical trial results.”

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