Leerink goes to bat for AstraZeneca, naming it top stock pick for 2017 on strength of ‘underappreciated’ pipeline

AstraZeneca HQ
AstraZeneca's headquarters in London, U.K.

Leerink has delivered a rare vote of confidence in AstraZeneca and its beleaguered pipeline. Analysts at the investment bank named AstraZeneca as their top Big Pharma stock pick for 2017, citing a belief its pipeline prospects for next year and beyond are underappreciated to back up their decision.

AstraZeneca has experienced more than its fair share of setbacks this year, with ZS-9, selumetinib and tremelimumab all stumbling to greater and lesser extents with the finish line in sight. But even after these missteps the Big Pharma still has multiple shots on goal lined up. As Leerink sees it, investors are too downbeat on the prospects of these near-term data readouts—and this has created opportunities for people willing to roll the dice with AstraZeneca.

The programs talked up by Leerink are well known. AstraZeneca’s MYSTIC trial tops Leerink’s list of reasons to be cheerful. The trial is giving CTLA-4 candidate tremelimumab alongside PD-L1 inhibitor durvalumab as a first-line treatment for non small-cell lung cancer (NSCLC). AstraZeneca is enrolling patients regardless of their level of PD-L1 expression in the phase 3 trial, but has the option to insert a cut-off point when performing the primary analysis.

AstraZeneca is arriving late to the checkpoint inhibitor party—and its journey in some indications has been disrupted by a partial clinical hold—but Bristol-Myers Squibb's miscalculation in NSCLC has given it a way in. Bristol-Myers’ Opdivo failed a phase 3 NSCLC trial after setting the PD-L1 cut-off point at 5%.

But it got a small boost today when the FDA said it would review its PD-L1 in bladder cancer, with a PDUFA date of Q2 next year, as it looks to battle Roche's Tecentriq market share.

This comes after its rivals Pfizer/German Merck, in the race to be fourth or fifth to market in the checkpoint inhibitor space, made a similar announcement last week, as both appear to be in line for approval at around the same time. Pfizer and its partner are having their med reviewed in a rare, aggressive form of skin cancer. 

If MYSTIC comes up trumps, Leerink analysts think it could unlock $4 billion in sales for AstraZeneca by 2021, 18% more than the current consensus. Equally, if MYSTIC joins the list of late-phase flops, it would take a chunk out of AstraZeneca’s market cap. Leerink analysts think such an outright failure is unlikely, though. Data from the trial are due in the first half of next year.

The analysts are similarly optimistic about Tagrisso, the EGFR T790M mutation-positive lung cancer drug that has been a rare source of consistent good news for AstraZeneca. Leerink thinks 2021 sales could clock in at $2.6 billion—18% above consensus—and rise by a further $1 billion if the first-line NSCLC trial FLAURA is an unmitigated success. Data from the trial are due in the second half of next year.

FLAURA and MYSTIC are two of a string of readouts pencilled in for next year. The success of those trials will go some way to showing whether Leerink’s belief in AstraZeneca is warranted. But, even if the pipeline disappoints, Leerink thinks AstraZeneca can fall back on that most reliable of Big Pharma strategies: Job cuts.

The analysts note AstraZeneca spends far more on SG&A as a percentage of sales than its rivals. And that gives it the opportunity to boost earnings by wielding the ax. The Big Pharma is in the middle of a $1.1 billion cost cutting drive that is set to claim 700 U.S. commercial jobs and affect its 280-person finance operation in the United Kingdom.

The co was up more than 3% this morning on its FDA news, Leerink's position, and its Alzheimer's deal with partner Lilly.