AstraZeneca dodged a London market sell-off on Monday on optimism that potential blockbusters in its cancer drugs pipeline can revive earnings growth.
Jefferies, upgrading AstraZeneca to “buy”, said investors have underestimated the group’s chances of being first to market with a combination immunotherapy treatment for the most common forms of lung cancer.
If a late-stage trial expected early next year proves successful, then AstraZeneca’s key pipeline oncology drugs, durvalumab and tremelimumab, would be on track to generate combined peak annual sales of nearly $15bn including $7.9bn from lung cancer, it forecast.
Consensus forecasts are much lower because Bristol-Myers Squibb and Merck & Co are around two years ahead of AstraZeneca in the development of monotherapy cancer treatments.
But data on AstraZeneca’s combination therapy looks robust and the patient trial for lung cancer — known as Mystic — is next in line to report following the failure last month of BMS’s Opdivo drug, Jefferies said.
The Mystic trial results are likely to be pivotal for the group, however, so recent rumours about AstraZeneca being a bid target for Novartis are probably unfounded, Jefferies added.
AstraZeneca closed 0.8 per cent higher at £48.58 in a jittery wider market, which pulled the FTSE 100 back 1.1 per cent, or 76.05 points, to 6,700.90.
Clothes retailers faded after Primark owner AB Foods said like-for-like sales at the chain were down about 2 per cent in the current quarter, and that sterling’s current weakness could become a drag on margins.
Royal Bank of Scotland slipped 3.4 per cent to 199.6p after Investec Securities downgraded to “sell”.
RBS trades at 0.7 times its 2017 tangible net asset value “despite the fact that we expect it to remain lossmaking with no dividend through 2016 and 2017”, said Investec. “We see its path to recovery as distant and uncertain.”
Separately, media agency Zenith cut ad growth forecasts for the UK in its global expenditure report but said there had been no widespread budget reactions in response to the EU referendum vote.
Security outsourcer G4S lost 3 per cent to 233.3p after Stifel downgraded to “sell”. With G4S still a forced seller of assets to repair its balance sheet, the stock’s recent rally “is relief driven rather than based on any sustainable incremental step-up in execution”, Stifel told clients.
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