Astra lacks direction after drug trial blow
Twelve FTSE 100 companies and a further 17 from the FTSE 250 had their results out yesterday. But through the resulting blizzard of percentages and cacophony of corporate verbiage it was the disappointing results of Astrazeneca’s Mystic drug trial that stood out.
Analysts had forecast that the potentially revolutionary new lung cancer treatment could have resulted in billions of dollars worth of sales. The whole pharmaceutical and biotech industry was braced because – thumbs up or thumbs down – the market was likely to turn positive or negative on all the other companies (like Bristol Myers and Merck) that are trying to develop immuno-oncology treatments.
Sure enough, Astra’s shares fell by as much as 17pc after it revealed that the initial results of the trial had been disappointing. Some £10bn was wiped off the value of the drugs giant in its worst day of trading since Zeneca listed in 1993. Bristol Myers and Merck followed it down. As Pascal Soirot, Astra’s chief executive, pointed out, there are more tests to come and the study is not a write-off. Astra is also developing other drugs. But there’s no sugarcoating it; this was a massive blow. The fact that the trial hasn’t gone Astra’s way can’t be laid at Soirot’s door. Such trials are not exactly a coin toss but there’s always a huge range of possible outcomes.
Investors know that pharmaceutical stocks are risky. What’s more, we would as a society be all the poorer if drugs companies didn’t feel they could risk investing in cutting-edge research and development.
That said, pharma executives need to take the uncertain nature of their business into account when deciding the company’s strategy. If a particular trial is a 50:50 bet, perhaps it’s best not to go all in. Yet, the possibility of becoming a market leader in immunooncology and lung cancer treatment was one of Soirot’s main arguments in rebuffing Pfizer’s £70bn takeover approach three years ago.
At £43 the share price is well below the £55 that was on offer when Pfizer came knocking. And yesterday’s results have left Astra looking a little directionless. The company’s half-year results, which were also released yesterday, highlighted that sales are falling and it badly needs new drugs to replace those that have come to the end of their patents.
The market now has to digest whether the Anglo-swedish company is once again a takeover target and whether it will be able to generate enough in earning to cover its dividend. The UK Government’s apparent aversion to some foreign takeovers might help Astrazeneca on the first count, but it is on its own for the second.
It didn’t help that Soriot offered only non-denial denials to the heightened speculation about his future. Many will have heard Soirot say he was “here today” and found it hard not to imagine an ellipsis trailing from his words.
Reliable… but overlooked
One set of results that did get drowned out yesterday were those from RELX. The information and analytics company changed its name from Reed Elsevier in order to stand out from the crowd, but still insists on releasing its results on one of the busiest corporate days of the year.
It doesn’t help that it is so reliably consistent. Yesterday’s results were a classic of the genre – ahead of expectations but only just. Revenues were up 4pc with all four of its division contributing growth, profits were up 5pc and the interim dividend up 14pc.
RELX belongs to a group of big UK companies like Bunzl, the distribution company, Compass Group, the catering firm, and Sage, the accounting software provider, that aren’t often written about but produce steady returns for investors. The share prices of all four over the past five years could practically be drawn with a ruler; the only variation is the gradient at which the slope moves upwards.
Of course the fact that they’re not written about is unlikely to be wholly unrelated to the fact that they have performed so steadily. Companies that chase growth attract more headlines on the way up, but they’ll also garner them on the way down again.
‘Some £10bn was wiped off the value of the drugs giant in its worst day of trading’