Company Reports

AstraZeneca reported strong first-quarter results that fell largely in line with our expectations, so we are holding firm to our fair value estimate.

AstraZeneca reported steady fourth-quarter results and issued 2024 guidance largely in line with our expectations. While we believe the market was expecting more robust results, we are not making any changes to Astra’s fair value estimate and continue to view the stock as undervalued. We believe the market is increasingly concerned about several drugs maturing and posting slowing growth and worried about lack of significant margin expansion. While we do expect some deceleration in key products such as cancer drugs Tagrisso and Calquence and generic pressure on cardiometabolic drug Farxiga in 2025, we expect several recently launched drugs to help propel top-tier industry growth for the company over the next four years. Also, we expect Astra to pivot marketing resources to newer launches from the maturing drugs to help support close to 300 basis points of margin expansion over the next four years.

AstraZeneca reported third-quarter results largely in line with our expectations, and we are holding firm to our fair value estimate. We continue to view the stock as undervalued with the market is likely underappreciating the company's pipeline and overall growth potential.

We are holding firm to our AstraZeneca fair value estimate following clinical updates from the European Society of Medical Oncology (ESMO) annual meeting. Overall, the innovation updates at the conference help support Astra’s current drugs and next generation of drugs, reinforcing the firm’s wide moat.

Johnson & Johnson reported positive top-line Mariposa data for its cancer drugs Rybrevant plus lazertinib versus AstraZeneca’s Tagrisso in first-line epidermal growth factor receptor-mutated non-small cell lung cancer. With Tagrisso generating annual sales over $5 billion (over 10% of AstraZeneca's sales), the market size is significant. However, we need to see the detailed data—to be released at an upcoming scientific conference—before making any major changes to our sales projections for the drugs and company fair value estimates. Only the progression-free survival, or PFS, endpoint was statistically significantly better; the overall survival, or OS, endpoint only trended better. As a result, we expect the data to incrementally better position Rybrevant plus lazertinib over Tagrisso. However, we don’t see the data having an impact on either firm’s wide moat, given the very strong pipelines and product portfolios at both companies.

Following a pipeline review of AstraZeneca's late-stage pipeline, we are increasing the long-term projections for several drugs, including camizestrant (breast cancer), capivasertib (breast cancer), eplontersen (rare disease), and danicopan (rare disease). Based on an evaluation of the drugs' efficacy and side effect profiles relative to the competitive landscape, these drugs look increasingly well positioned to develop into significant new blockbusters for the company. As a result of the increased outlook for the pipeline drugs, we are increasing the firm's U.S. listed share class to $78 from $74, but slightly reducing the local share class fair value to GBX 12,400 from GBX 12,500 as the changes in exchange rates more than offset the increased pipeline projections. As a reminder, we project AstraZeneca's cashflows in U.S. dollars (the same currency used in Astra's financial results) for our discounted cash flow model. We then convert the valuation into pounds for the local share class.

AstraZeneca has built its leading presence in the pharma and biotech industry on patent-protected drugs and a developing pipeline that add up to a wide moat. The strong replenishment of new drugs is setting up industry-leading growth.

As part of the Inflation Reduction Act, the U.S. Department of Health and Human Services on Aug. 29 announced the first 10 drugs selected for mandated 2026 Medicare price negotiations. This doesn’t have a major impact on our valuations or moat ratings for the biopharma industry. The 10 drugs have been on the market for a prolonged period (seven years for small-molecule drugs and 11 years for biologics) and were selected based on the largest gross (before discounts) spending in Medicare Part D.

AstraZeneca reported strong second-quarter results largely in line with our projections and consistent with our fair value estimate. The results included a one-time gain from the rearrangement of the deal with Sanofi and Sobi for respiratory syncytial virus treatment Beyfortus, which led to a bolus in earnings growth that will not likely recur. Excluding COVID-19 product sales, total sales increased 16% with broad-based support, but we expect growth to decelerate as the portfolio matures. Cancer drugs increased 18%, led by Tagrisso, Imfinzi, Lynparza, and Calquence. While these drugs are still gaining new indications, we expect their growth to slow as the core indications are getting saturated. However, more recently launched cancer drug Enhertu holds significant potential for growth. Outside of cancer, cardiometabolic drug Farxiga posted 41% growth and represented the firm’s largest drug in the quarter. While we expect continued robust growth for Farxiga over the remainder of the year, the 2024-25 patent losses will create a major headwind to Astra’s growth potential. Also, respiratory drug Symbicort will likely face increased generic pressure in 2023, adding another headwind to growth.

AstraZeneca reported mixed phase 3 data for datopotamab deruxtecan in lung cancer, but we don’t see the data as having a major impact on the firm’s fair value or wide moat. The cancer treatment datopotamab deruxtecan represents a moderate sales opportunity in our valuation model with peak annual sales close to $1 billion since we have only seen limited early-stage clinical data.

AstraZeneca reported solid first-quarter results slightly above our expectations, but we don’t expect any major change to our fair value estimate. While COVID-19 product sales were down as expected with the pandemic receding, core products continue to post solid growth while the pipeline is making excellent strides to reinforce the firm’s wide moat.

AstraZeneca reported fourth-quarter results and 2023 guidance largely in line with our expectations, and we don’t expect any major changes to our fair value estimate based on the update. We continue to view Astra as undervalued, with the market not fully appreciating its industry-leading pipeline development and strong current product portfolio that helps to reinforce its wide moat.

AstraZeneca has built its leading presence in the pharma and biotech industry on patent-protected drugs and a developing pipeline that add up to a wide moat. The replenishment of new drugs is setting up industry-leading growth.

AstraZeneca reported strong third-quarter results ahead of our expectations, and we plan to slightly raise our fair value estimate based on the results and solid pipeline advancements. We continue to view the stock as undervalued with the market not fully appreciating the strong growth outlook and the innovative pipeline that also supports the firm’s wide moat.

After taking a closer look at what we consider the three key elements of the Inflation Reduction Act that will affect the biopharma industry over the next decade, we're reducing our fair value estimates for 17 of the biggest biopharma names in Morningstar's coverage by an average of 2%. We think the step-down in U.S. branded drug sales from capping Medicare price increases to inflation (fully rolled out in 2023), redesigning Medicare Part D (beginning in 2025), and Medicare negotiation (beginning in 2026 for small molecules) will result in a 3% reduction in total sales for these firms by 2031, with firm-level reductions depending on the firm's reliance on the U.S. market, proportion of the portfolio targeting seniors, history of price increases, and relative size of its small molecule and biologics portfolios (as biologics are immune from Medicare negotiation for 13 years instead of nine). Our estimates factor in some ability for the industry to either benefit from certain changes (like potential increased prescription fill rates in Part D with lower out-of-pocket costs) or compensate for headwinds (like responding to inflation caps on price increases with higher launch prices). Overall, we think the effect of the Inflation Reduction Act is manageable for the industry, and we see the competitive advantages and economic moats of these firms remaining intact.

AstraZeneca has built its leading presence in the pharma and biotech industry on patent-protected drugs and a developing pipeline that add up to a wide moat. The replenishment of new drugs is offsetting the past patent losses on gastrointestinal drug Nexium and cholesterol reducer Crestor, and the company is well positioned for growth.

The likelihood of drug-pricing policy changes in the United States changed dramatically over the course of July, and we are now assessing the impact of the various measures included in the Inflation Reduction Act of 2022 in our Big Biopharma valuation models. Assuming the bill is eligible to pass via reconciliation (the Senate parliamentarian is reviewing the bill), we think Democrats will be able to pass the Senate bill, paving the way for it to be signed into law. Overall, we don’t expect major changes to our fair value estimates or moat ratings, as the changes net out to a moderate negative that we believe is manageable, likely through a combination of cost-cutting, agreements with generic firms for limited authorized generic launches (to avoid the list for negotiated drugs), and higher launch prices (to counter pressure on price increases and earlier declines due to negotiation).

AstraZeneca reported solid second-quarter results slightly ahead of our projections, but we do not expect any major changes to our fair value estimate based on the minor outperformance. We continue to view AstraZeneca as fairly valued, with the stock price reflecting the solid sales growth outlook (8% five-year compound annual growth rate) driven by current and pipeline products that also support the firm’s wide moat.

Morningstar now directly incorporates cost-effectiveness analysis into our biopharmaceutical ratings through what we're calling our capsule system. Given the lack of regulatory oversight on whether U.S. drug launch prices or price increases are justified, an independent, private organization—the Institute for Clinical and Economic Review, or ICER—has gained prominence and authority assessing cost-effectiveness. Drugs that are priced above ICER's cost-effectiveness thresholds or that record high unsupported price increases contribute to Morningstar's ESG Risk Rating Assessment and equity research methodology for incorporating environmental, social, and governance risk into our fair value estimates and moat and uncertainty ratings.

AstraZeneca has built its leading presence in the pharma and biotech industry on patent-protected drugs and a developing pipeline that add up to a wide moat. The replenishment of new drugs is offsetting the past patent losses on gastrointestinal drug Nexium and cholesterol reducer Crestor, and the company is well positioned for growth.