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Long-term Stocks To Watch: AstraZeneca PLC (AZN)

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Investment thesis - summary

Strategy of getting multiple indication approvals for the same drug seems to be paying off for AstraZeneca PLC (AZN), in terms of higher likelihood of approval and improved sales. Besides, the company is realizing value from non-core, mature brands to invest in new drugs, which also seems to be working in its favor.

Recent developments that support these arguments, include

*Raising $350 million from selling patent-expired hypertension medicines

*Regaining global rights to experimental drug against Crohn's Disease and ulcerative colitis; Expenses paid by Allergan until development completion

*Success in late-stage stroke trial; AZN drug + Aspirin combo significantly cuts risk of subsequent stroke vs. Aspirin alone

*Success in mid-stage cancer trial; Approved breast cancer treatment shows promise in stubborn Gastric cancer as well

*Priority review granted for complicated prostate cancer drug

*Orphan drug designation for Liver cancer drugs

Catalysts in detail

Raising $350 million by divesting rights to Hypertension medicines

AstraZeneca agreed to sell the global commercial rights to its hypertension medicines, excluding Japan, to Atnahs Pharma for $350 million plus potential sales-contingent payments of up to $40 million between 2020 and 2022.

These drugs have lost patent protection globally, and generated total sales of $132 million in 2018 in the markets covered by the agreement, which excludes the previously divested rights in India and the U.S., as well as Japan.

The move is in line with the company's strategy to realize value from non-core mature brands, to further invest in new medicines. The deal is expected to close in the first quarter of 2020.

Regaining global rights to experimental drug against Crohn's Disease and ulcerative colitis; Expenses paid by Allergan until development completion

AstraZeneca is reclaiming from Allergan the global rights to Brazikumab, currently being evaluated as a potential treatment for Crohn's disease (CD) and ulcerative colitis (UC). The story gets even better, because when AstraZeneca and Allergan terminate the existing license agreement, the latter will still fund the estimated costs to be incurred by AstraZeneca, until completion of development for brazikumab in CD and UC.

This includes the development of a companion diagnostic. A good deal for Astra indeed! If brazikumab is approved and launched, Amgen, under a 2012 agreement, will receive a high single-digit to low double-digit royalty on drug sales, including the original inventor royalty.

Success in late-stage stroke trial; AZN drug, Aspirin Combo one-up on solo Aspirin

AstraZeneca 's blood-thinner Brilinta 90 mg dose, coupled with aspirin and taken twice every day, significantly cut the risk of a subsequent stroke or death vs. aspirin alone in patients who had suffered a stroke or transient ischemic attack and began treatment within 24 hours. The results were derived from a top-line phase 3 study conducted in over 11,000 patients.

Usually, the risk of having a subsequent stroke is highest in the first few days and weeks after a minor acute ischaemic stroke or high-risk transient ischaemic attack, but Brilinta atop Aspirin reduced the risk during this crucial time, says medical expert Dr. Clay Johnston - lead investigator for the trial and Dean of the Dell Medical School at The University of Texas at Austin.

The latest trial results add to the growing popularity of Brilinta, which is approved in more than 110 countries for the treatment of acute coronary syndrome and in more than 70 countries for the secondary prevention of cardiovascular (CV) events among high-risk patients who have experienced a heart attack. For the first nine months of 2019, Brilinta generated sales of $1.15 billion.

Success in mid-stage cancer study; Approved breast cancer treatment shows promise in stubborn Gastric cancer

Astrazeneca's anti-Her2 antibody-drug conjugate Enhertu, which it jointly develops with Daiichi Sankyo, showed promise in Gastric cancer. The topline readout from a mid-stage study showed that Enhertu achieved a statistically significant and clinically meaningful improvement in objective response rate (ORR) and overall survival (OS) in patients with HER2-positive unresectable or metastatic gastric or gastroesophageal junction cancer who failed at least two prior treatments.

The phase 2 study evaluated 189 patients from Japan and South Korea and the patients were randomized 2:1 to receive Enhertu or investigator's choice of chemotherapy. Enhertu fared better than the chemotherapy choice.

Her2 or Human epidermal growth factor receptor 2 is a protein expressed on the surface of many types of tumors including gastric, breast and lung cancers. HER2 overexpression is often associated with aggressive disease and poorer prognosis.

Enhertu was granted accelerated approval by the FDA in late December to treat metastatic breast cancer patients who failed multiple prior treatments, although there was some misgiving about the toxicity profile of the drug. About 14% of the study patients developed interstitial lung disease (ILD) during treatment and there were 4 deaths attributed to ILD. Other side effects included nausea, vomiting and low white blood cell counts.

However, no ILD-related deaths were seen in the 189 Her2-positive subjects for the Gastric cancer trials. Astra and Daiichi plan to discuss the data with health authorities, while Daiichi will initiate talks with Japanese regulators about a registration path forward.

Orphan Drug status for Liver cancer treatments

AstraZeneca's Lung cancer treatment Imfinzi and potential new medicine tremelimumab that has been tested in combination in different types of cancers - were both granted Orphan Drug Designation (ODD) in the U.S. for treating a most common type of liver cancer.

Orphan status is given to experimental drugs and biologics for treating rare diseases/disorders that affect fewer than 200,000 people in the U.S. and offers incentives like a partial tax credit for clinical trial expenditures, waived user fees, and eligibility for 7 years of marketing exclusivity.

Imfinzi is also approved for treating bladder cancer and fetched sales of $1.05 billion for the first nine months of 2019.

Priority review granted for drug to treat severe form of prostate cancer

The FDA granted priority review for Astra's Lynparza as a potential treatment for HRR-mutated metastatic castration-resistant prostate cancer. A decision is expected in the second quarter of 2020.

Lynparza is already approved for the treatment of advanced ovarian cancer, metastatic breast cancer and metastatic pancreatic cancer and fetched sales of $847 million for the first nine months of 2019.

AstraZeneca Stock

AZN is trading close to an all-time high of $51.55. The shares closed yesterday's trade at $48.9 down 38 cents, on a volume of 2.27 million shares vs. average trading volume of 2.76 million shares.

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