Last week, the AstraZeneca (LSE:AZN) share price took a 4.3% tumble.
While that might not seem like much at first glance, I always remember the old adage — the bigger they are, the harder they fall.
In fact, this seemingly modest percentage drop equated to a staggering £6.75bn being wiped off the pharmaceutical Goliath’s market capitalisation.
The Anglo-Swedish FTSE 100 company took the hit after releasing disappointing results for a highly anticipated lung cancer drug.
Why is this drug important?
The drug in question, datopotamab deruxtecan, was developed in partnership with Daiichi Sankyo, a Japanese pharmaceuticals company.
It targets non-small cell lung cancer, the most common form the illness. That represents a large potential target market for drug developers.
It’s an antibody-drug conjugate (ADC), designed to deliver chemotherapy directly to cancer cells, targeting a protein called TROP2. The approach had given good results in treating breast cancer (more of that later), making it a significant focus for AstraZeneca.
But the drug led to only a month’s benefit over chemotherapy in lung cancer patients. Specifically, patients lived for 4.4 months before their cancer worsened, only minimally better than the 3.7 months for those receiving chemotherapy.
This raised questions about the potential benefits of this class of drugs for treating lung cancer. The results weren’t statistically significant, and investors sold off AstraZeneca shares in response.
The path forward
Despite the setback, it’s not all gloomy. Just 3.4% of patients experienced serious interstitial lung disease, a known side effect. That’s better than the 5% rate doctors had viewed as acceptable.
If AstraZeneca can show overall survival benefits in future studies, the drug’s so-called tolerability profile may not be as bad as expected.
A ray of light
Meanwhile, in a recent Phase 3 study, AstraZeneca and Daiichi Sankyo’s breast cancer treatment outperformed chemotherapy.
The drug, also an ADC, showed that patients lived longer before their cancer worsened compared to those receiving chemotherapy.
This study positions AstraZeneca’s drug in direct competition with Trodelvy, a breast cancer treatment from Gilead Sciences, the US pharma company.
The study is ongoing, but the interim results have been promising. Importantly, there were no new safety issues reported.
Where’s the price headed?
Based on 12 Wall Street analysts offering 12-month price targets for AstraZeneca, the average price target is £127.50. That would be an 18% increase compared with where the stock closed on Friday (20 October).
However, no one knows what the future holds, and I’ve learnt to take stock analysts’ price forecasts with a bucketful of salt.
In terms of valuation, AstraZeneca has a price-to-earnings (P/E) ratio of 32, which is slightly below the US pharma industry average of 37.
Still, I won’t be adding the stock to my portfolio. I already hold a FTSE 100 index tracker, and AstraZeneca is the biggest component. I don’t see any compelling reasons to believe that the stock will outperform the market. For now, I’ll make do with my passive exposure to the company.
Mark Tovey has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023