According to market rumours, AstraZeneca informally approached Gilead for a possible merger last month – if the deal goes ahead, it would be the biggest transaction in pharma industry to date. However, the strategic rationale for the deal appears limited – AstraZeneca and Gilead have limited overlap in businesses and a merger would hardly generate any synergies – and, thus, we believe that this fusion is unlikely. Political interference could also crop up if the rumours are true.
Despite being China-heavy, AstraZeneca had a superb start to 2020, with Q1 sales CER growth of 17%. While Oncology was once again the key growth driver, reasonable (but possibly transient) support came from ‘Respiratory + Immunology’, and New CVRM. However, a key question is – how long can Astra sustain this momentum, especially when COVID-related forward buying retreats? Moreover, the restoration of healthy group-level operating margins is still missing, thereby making us sceptical of the group’s (extremely-)high price multiples.
Novacyt (NCYT.L): Agreements struck with Bruker and Yourgene | Polarean Imaging (POLX.L): Change of General Meeting Venue | Silence Therapeutics (SLN.L): Strategic collaboration with AstraZeneca (AZN.L)
Companies: NCYT POLX SLN AZN
AstraZeneca’s Q4 results were disappointing, both from a sales growth and profitability perspective. While Oncology and CVRM (to some extent) remain the key growth drivers, growing competition is concerning. Moreover, with the 2019-nCoV scare, near-term business visibility has hit a low. However, the group still has one of the largest oncology pipelines in our coverage and is awaiting/applying for/in major new indications/geographies in Oncology and even CVRM, which should give a push to sales growth.
AstraZeneca (AZN.L): FDA accepts NDA submission for selumetinib | Beximco Pharma: First quarter results show continued growth | Tissue Regenix Group plc (TRX.L): Update on loan agreement |
Companies: AZN BXP TRX
AstraZeneca (AZN.L): Issued detailed results from lupus trial | Polarean Imaging: Delivery of polariser for research use | Hemogenyx Pharma: Presentation at Investival Showcase
Companies: POLX HEMO AZN
Once again, AstraZeneca had a healthy quarter, continuing its strong performance in oncology and in China. Although, operating margins came under pressure. While the company has many high-potential drugs in the pipeline, especially in oncology, we maintain a somewhat cautious stance as competition is intensifying and the group’s pipeline execution has historically had a mixed track record.
The cancer burden is growing globally. Each year >18 million people are diagnosed, nearly 10 million die and the estimated economic cost exceeds $1 trillion. From early diagnosis to late-stage disease, cancer care often involves inappropriate or unnecessary interventions that drive costs but provide limited clinical benefit. Coupled with an increased understanding of cancer biology and rapid technological advances, this has been driving momentum for precision medicine, leading to patient and societal benefits. The use of biomarkers and sophisticated diagnostics is facilitating early intervention through robot-enabled minimally invasive surgery and locally delivered radiotherapy. Immuno-oncology has revolutionised cancer care, with the focus now on identifying combinations that further improve long-term outcomes. Liquid biopsies and companion diagnostics are increasingly being used to personalise therapy.
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Excellent performance by new drugs at AstraZeneca led to 18% growth in the group’s sales, while the core operating profit grew by 8%, both outperforming the street as well as our expectations. Oncology continued to be at the forefront of this growth, supported by CVRM and respiratory. Top-line guidance for the year was upped, while core EPS guidance was maintained.
Companies: AZN AVO AJB AGY ARBB CLIG DNL DPP FLTA GTLY GDR HAYD KOOV MCL MUR PCA PHP RE/ REDX STX SIXH TON SHED VAL VTA W7L
Historically, AstraZeneca (AZN) was a leading global pharmaceutical company, but it has slipped down the rankings following a period of patent expiry on major drugs, notably Nexium, Losec and Seroquel. Understandably, the financial performance, particularly operational cashflow, has suffered through this period and AZN has moved from a net cash ($339m) position in 2009 to net debt of $16.3bn at the end of 1Q’19, necessitating a cash call. Better planning, notably earlier cessation of share buybacks and re-basing its dividend, would have left it in a much stronger position. Meanwhile, its use of ‘core’ EPS greatly overstates true performance.
AstraZeneca reported solid growth in the top-line, although profitability (at the reported level) fell short of the street’s expectations. Top-line was driven by broad-based growth across the franchise (barring some mature products), led by oncology. Emerging Markets engineered this robust performance, mitigating the deceleration in Europe. Under-performing profitability was a factor of higher sales and marketing investments on new drugs. FY 2019 guidance was reiterated.
AstraZeneca is entering into a licensing deal with Japanese Daiichi Sankyo for a cancer drug candidate under development. The total value of the transaction is $6.9bn, of which AstraZeneca will be paying Daiichi $1.35bn upfront, $3.8bn on achieving regulatory and other milestones, and $1.75bn after hitting some sales targets. The two companies will be sharing the development and selling costs equally, along with the global profits (except Japan) – Daiichi will book the sales in US and parts of Europe, while AstraZeneca will do so in the other markets including China, Australia, Canada and Russia. AstraZeneca will be raising fresh equity of $3.5bn to fund this transaction and for paying part of the debt.
AstraZeneca finally returns to growth. Q4 top-line was largely in line with the street’s expectations but lower than our estimates. Product sales were healthy, delivering a CER growth of 8% to $5.8bn, taking the total sales figure for the quarter to $6.4bn (+14% at CER). Core EPS grew by 22% to $1.8, again ahead of the expectations. The commentary in the conference call was quite positive and exuded strong focus, discipline and confidence.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
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Laboratory Services Contracts Signed
Companies: Open Orphan
Diaceutics is expected to report 20% YoY revenue growth in H1E. This strong performance against a difficult global backdrop reinforces the recession proof growth qualities of the business model. With the launch of the DXRX platform this year, we expect further operational benefits to flow through the business.
MaxCyte’s new clinical and commercial licence agreement with Apeiron Biologics allows the use of MaxCyte’s proprietary Flow Electroporation technology for manufacturing Apeiron’s gene-silencing siRNA therapy, APN401, for clinical studies. The deal is the latest in a series of clinical and commercia
ReNeuron has released further follow-up data from the ongoing human retinal progenitor cell (hRPC) trial, which shows a robust sustained averaged response. This data set completes the six-month data on eight patients and extends, for one individual, to 18 months, who showed a good net gain. The next dose level, two million cells in nine patients, remains delayed due to COVID-19. A filing to start a pivotal study is expected in the second half of CY21. Our indicative value remains at £107m.
Companies: Reneuron Group
RenalytixAI (RENX.L): Proposed dual-listing on Nasdaq | e-therapeutics (ETX.L): Covid-19 project update | RedX (REDX.L): Appointment of Non-Executive Director
Companies: RENX ETX REDX
Today Ergomed held its annual general meeting (AGM). As expected, no new financial details were provided, although the executive chairman released a statement with a general business update. Q120 trading was good with ‘solid overall growth in revenue’ and cash generation ‘remained strong’. In Q220, Ergomed continued to grow the order book across the business and maintained its ‘revenue growth trend’. Its staff successfully adapted to remote working conditions and no employees were made redundant or furloughed. The H120 trading update will be released in July 2020 as usual, but Ergomed stated within its AGM update (June 10) that it is confident the results will be ‘in line with current market expectations’.
Inspiration Healthcare has announced its intention to acquire SLE Limited (SLE), a leading neonatal ventilator designer and manufacturer for consideration of £18.0m. Inspiration Healthcare has conditionally raised £16.5m (gross, ahead of an open offer) via an oversubscribed equity placing to support the acquisition. We believe the acquisition represents a transformation deal, virtually doubling the size of the business and providing significant new revenue growth opportunities. We expect the acquisition, on a 12-month proforma basis to be accretive to adjusted earnings in the near-term and increasingly so in the medium-term. We reiterate our Buy recommendation.
Companies: Inspiration Healthcare Group
Having taken time to assess the potential impact of COVID-19, IXICO has today provided a trading update for FY20E and an expectation for FY21E revenue growth. Revenues and EBITDA for FY20E are expected to be at least £9.1m and £0.9m respectively. Revenue growth for FY21E is expected to remain at double-digit levels. We view the trading update as a display of confidence in the ability of the company's remote access business model, proprietary technologies, and centralised AI data analytics capabilities to continue to serve its client base. We have re-instated forecasts for IXICO and reinstate our Buy recommendation.
Hutchison China MediTech (HCM) is on the brink of global launches of two assets from its internally developed oncology portfolio. In 2022 we expect US launches of surufatinib (broad NET indication) two years earlier than forecast as well as savolitinib (NSCLC). Recently the FDA granted fast-track designation to fruquintinib in mCRC and we forecast global launch in 2023. In China, HCM has laid the foundations to capitalise on the slew of additional novel oncology drugs (expected by end 2021). HCM is well funded (following the recent $100m equity investment from General Atlantic, plus warrants granted for an additional $100m in 18 months) as it accelerates the global development of its unpartnered assets and expands its global commercial outreach. Beyond 2024 we expect sustainable profitability and margin expansion. Our increased valuation is $6.3bn.
Companies: Hutchison China Meditech
Hutchison China MediTech (HCM) is on the brink of global launches of two assets from its internally developed oncology portfolio. In 2022 we expect US launches of surufatinib (broad NET indication) two years earlier than forecast as well as savolitinib (NSCLC). Recently the FDA granted fast-track designation to fruquintinib in mCRC and we forecast global launch in 2023. In China, HCM has laid the foundations to capitalize on the slew of additional novel oncology drugs (expected by end 2021). HCM is well funded (following the recent $100m equity investment from General Atlantic, plus warrants granted for an additional $100m in 18 months) as it accelerates the global development of its unpartnered assets and expands its global commercial outreach. Beyond 2024 we expect sustainable profitability and margin expansion. Our increased valuation is $6.3bn.
Collagen Solutions (COS.L): Supply agreement with NovaBone
Companies: Collagen Solutions
SDI announced that it expects to meet market expectations for FY 2020, which are for adjusted pre-tax profit of £4.2m. Despite taking decisive action to reduce costs following the lockdown on 23 March, and confirmation that it has traded profitably in March and April, the lack of long-term visibility prompts a withdrawal of FY 2021 guidance. That said, we believe the company to have sufficient liquidity to weather the COVID-19 crisis with end markets still viable, and the improved 2020 margins are positive.
Companies: Scientific Digital Imaging
Many of the world’s best and most important products (eg Space exploration, nuclear medicine/power & the internet) were originally invented by the military. It’s happened again – but this time to combat airborne pathogens like Ebola, SARS/MERS and all manner of other biological nasties doing the rounds. You see on 10th December 2018, Kromek was awarded a $2.0m contract by DARPA (research arm of US Dept. of Defense) to develop a vehicle-mounted bio-threat detector. The idea being that this should be able to rapidly identify (within 1 hour) any dangerous germ that might have been released into the environment, say by terrorist groups, organised criminals &/or rogue states.
Companies: Kromek Group
Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
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