Astra's Externalized Revenue Is Unsustainable

In the quarter, growth in cancer drugs moderated generic competition and pricing pressures in respiratory and diabetes markets. We expect this trend to continue, but the gains in cancer drugs should strengthen beginning in late 2018. On the oncology side, the first-line indication of Tagrisso with best-in-class efficacy (expected in mid-2018) should drive peak sales above $3 billion. Also, the stage III lung cancer indication for Imfinzi (expected in mid-2018), combined with additional indications, should drive the drug’s peak potential over $3 billion as well. While we are less bullish on Astra’s PARP cancer drug Lynparza due to the focus on smaller subsets of patients, emerging data in breast cancer looks encouraging. We expect these cancer drugs will offset the weakening pricing in primary-care respiratory drugs, where payers will likely pressure prices as competitive Advair generics enter the market. Also, as Astra is close to annualizing its major patent losses, the generic headwinds should begin to decelerate in 2018.

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