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Mixed views on the drug company’s prospects as dividend fears surface
Thursday 03 Aug 2017 Author: Lisa-Marie Janes

Analysts are split on whether drugs titan AstraZeneca (AZN) can bounce back from the shocking failure of its MYSTIC lung cancer trial as fears of a dividend cut and opportunistic takeover bids emerge.

Shares in AstraZeneca crashed 15.6% on 27 July after the trial failed to demonstrate that a combination of durvalumab and tremelimumab immunotherapies could help patients in the advanced stages of lung cancer. After a modest recovery they trade at £45.42.

AstraZeneca has been trying to catch up to leaders in immunotherapy – a means of treating cancer and other diseases which taps into the power of the immune system.


Beaufort Securities analyst Ben Maitland has downgraded AstraZeneca to ‘sell’ on the failed drug trial and believes the dividend is at risk.

He has also cut his forecast target price by 11% to £39.

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‘Looking forward, we are becoming more concerned that the core AstraZeneca business is not generating enough cash to justify its generous dividend policy,’ comments Maitland.

He believes the full year 2018 dividend is at risk and suspects that a cut in a range of 25% to 50% may be on the cards. In the full year to 31 December 2016, AstraZeneca paid $2.80 per share.

Maitland says a potential takeover of the company is unlikely as nothing has significantly changed since US rival Pfizer tried to acquire AstraZeneca in 2014. This deal was largely justified by UK cost cutting and tax rate savings and was ultimately blocked by the authorities.

He believes AstraZeneca is not deterred from its oncology focus, despite the setback and the high capital expenditure spent on the MYSTIC trial.


Jefferies is also negative and says the ‘failure of MYSTIC to hit the progression-free survival endpoint for the mono and combo arms is a significant blow.’ The investment bank estimates the disappointing results have wiped off between 10% and 15% of mid-term earnings and valuation from AstraZeneca.

Despite AstraZeneca’s setback, Jefferies believes the company has an interesting pipeline and highlights that the Imfinzi (durvalumab) drug experienced success in other areas and could be used to treat other cancers.

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It adds the pipeline could make the pharma giant a ‘potential consolidation target, once the negative impact of MYSTIC has been priced in.’

Cantor Fitzgerald’s Brian White also sees recovery potential in AstraZeneca thanks to the strong launch of oncology drugs Lynparza and Tagrisso, which generated $59m and $232m in sales in the first half of 2017.

AstraZeneca trades on a forecast 15.1 times earnings per share in the year to 31 December 2018.

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