Friday, February 14, 2020

How Healthy is AstraZeneca?

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What’s happening: AstraZeneca is scheduled to report its fourth-quarter results before the opening bell on Friday, February 14.

What happened: AstraZeneca has beaten the consensus estimates every quarter for the past two years. The UK-based pharma company has, however, been witnessing declining sales of its major legacy drugs due to rising generic competition. AstraZeneca’s shares have been rising on the launch of new drugs and in anticipation of an upbeat earnings call, even as archrival GlaxoSmithKline disappointed investors with its weak results and downbeat forecast for the year.

  • The consensus revenue estimate stands at $6.74 billion, representing 5% year-on-year growth.
  • The estimate for earnings is 56 cents per share, a 64.6% decline against the same quarter in the previous year.

Why it matters: Although AstraZeneca is facing stiffening competition from the generic versions of its legacy drugs, this trend is not new to pharma giants. In fact, the Anglo-Swedish drug-maker seems to have been preparing for this, with the launch of new drugs. Backed by these, the company had raised its sales guidance twice in 2019, with rising demand for cancer, heart disease and diabetes treatments.

Sales of Lynparza, which AstraZeneca markets in collaboration with Merck, are expected to have risen due to its expanded use in ovarian and breast cancer. Imfinzi saw solid demand from the US in the fourth quarter, especially for lung cancer.

Sales of cancer drugs Lynparza, Imfinzi and Tagrisso are likely to have offset the decline in sales of AstraZeneca’s many legacy medicines. Fourth-quarter sales growth may have also been boosted by AstraZeneca’s other major drugs Brilinta, Fasenra and Farxiga.

The pharma giant has 164 treatments in Phase I, II and III trials and has been announcing positive updates on these.

Earlier this month, the company announced plans to make an investment of $133 million to expand its Australian facility. This is expected to create 250 new jobs and lift the facility’s annual exports.

AstraZeneca’s shares rose more than 36% in 2019, versus the industry’s 13.7% gain.

What to watch: The market will watch the FTSE 100, where AstraZeneca is a major constituent. During the earnings call, management is expected to provide details of the launch plans for trastuzumab deruxtecan, which received FDA approval for metastatic breast cancer in December. Investors will also be awaiting coronavirus-related comments from AstraZeneca, which has a strong presence in China, with around 16,000 employees.

The Markets Today

     

Investors will be watching European stocks today, amid a rise in coronavirus cases, as important economic releases from the area are likely to provide some support to the markets.

Context: European shares closed mostly lower on Thursday, with the economic impact of the coronavirus remaining a major investor concern. Comments from the WHO did calm investor nerves, as the global public health organisation said that coronavirus cases are not rising dramatically outside China.

Details: European stocks opened much lower in Thursday’s trading, after China announced a sharp increase in new cases following a change of method for counting and reporting cases. There were 14,840 new cases and 242 more deaths on February 12. However, WHO’s statement and some strong earnings reports and guidance from European companies provided some relief to the markets.

After opening lower on Thursday, the European STOXX 600 index pared most of its losses and finished just 0.02% lower. The index had reached new highs in the previous two sessions. Shares of Zurich Insurance, NN Group and Commerzbank posted gains after upbeat earnings reports.

The rise in German stock Linde helped the DAX 30 wipe most of the session’s losses. Linde’s shares gained over 3% after the company announced plans to accelerate profit growth in 2020. DAX closed 0.03% lower to settle at 13,745.43.

Italian shares closed slightly higher after reports of Telecom Italia accepted help from private equity giant KKR to acquire fibre operator Open Fiber. The FTSE MIB Index rose 0.12% to close at 24,892.15.

UK Finance Minister Sajid Javid announced his unexpected resignation and former Treasury official Rishi Sunak has been named as his replacement. The move surprised the markets and helped the British pound record gains against major rivals. London’s FTSE 100 index closed down 1.09%.

Why it matters: After a slightly weak performance in Thursday’s session, all eyes are on the bunch of economic data scheduled for release today, including GDP growth rate, balance of trade and employment change. Investors will also keep a close eye on various economic reports from the US.

What to watch: After the EU’s 0.3% sequential GDP growth in the third quarter, preliminary estimates show 0.1% growth in the fourth quarter. Eurozone trade surplus is expected to have widened to €21.4 billion in December, from €20.72 billion in November. Employment change in the region is likely to remain unchanged from the previous quarter. The markets could come under pressure if the economic releases disappoint.

Other Markets: Most US indices closed lower on Thursday, with the Dow, S&P 500 and the NASDAQ down 0.43%, 0.16% and 0.14%, respectively.

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What else to watch today

     

India’s wholesale price index and balance of trade, Germany's GDP growth rate and wholesale prices, Turkey’s current account data, Spanish Consumer Price Index, Italy’s balance of trade, US data on retail sales, import and export prices, industrial production and business inventories as well as University of Michigan's consumer sentiment index and Baker Hughes North American rig count report.