AstraZeneca (AZN) had yet another piece of bad news on Monday from its R&D pipeline with the news that cancer drug, Recentin (cediranib), failed to meet the primary endpoint in the Horizon III study. The company was evaluating the effectiveness of Recentin in a phase II/III study compared with Roche’s Avastin (bevacizumab), both in combination with chemotherapy in patients with first-line metastatic colorectal cancer (mCRC). As reported in a previous Contrarian Investor UK article, Horizon III was identifed as a high-risk study for Astra. The company also reiterated its financial guidance for 2010 and announced further cost cutting measures including site closures. The company guided for 2010 earnings of £3.80 ($5.75) to £4.10 ($6.15) , lower than the £4.20 ($6.32) reported in 2009 and putting the company on a forward price/earnings (p/e) of just over 7. With the loss of patent proection on cancer drug, Arimidex, and asthma drug, Pulmicort, in the US, the company expects a mid single-digit decline in revenue in 2010.
The pressure for Astra Zeneca to deliver on its R&D pipeline is signficant given the large number of patent expiries over the next 3-4 years. The failure of Horizon III puts the risks ahead for Astra into perspective and although the company trades on an undemanding forward p/e of 7 (compared to sector peers of 10 or so), the picture into 2011 and beyond is hazy. Although the company is focused on earnings growth through cost cutting, the scale of the patent expiries ahead means this will not be enough to sustain earnings per share. Astra has been plagued by bad luck in clinical trials, they need this luck to change quickly before Contrarian Investor UK advises this stock above other more diversified pharma stocks.
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