When FTSE 100 stocks suddenly plummet in value, it often pays to take notice. Sudden downward movements in share prices can sometimes be good opportunities to enter positions at a bargain level. However, there’s always a risk that aggressive selling can continue.
With a market cap of £166.1bn, AstraZeneca (LSE:AZN) is the Footsie’s largest constituent. In the wake of disappointing lung cancer drug trial results, shares in the biotech giant went into a tailspin on Monday.
So, could today be an opportune moment for investors to add the stock to their portfolios? Or does recent news mean this is a company to avoid? Here’s my take.
A tarnished trial
Clinical trials can have a considerable impact on the share prices of pharmaceutical companies. Since patent protection for medications only lasts for 20 years, these firms rely heavily on bringing new drugs to market for future revenue.
In that context, AstraZeneca saw almost £14bn wiped off its valuation after releasing the phase III trial results for its new lung cancer drug, datopotamab deruxtecan. Although the study showed the medicine could delay the progression of cancer for longer than current chemotherapy, it didn’t show conclusive evidence that patients would live longer.
In addition, the drug caused some side-effects leading to lung scarring. Most of these incidents were ‘low grade’, but the company also found there were some ‘grade 5’ events — essentially, deaths.
Concerns about the drug’s efficacy and safety have knocked investor confidence in AstraZeneca, dashing some hopes that the medicine could produce £8bn in sales. Lung cancer is the second-most common cancer worldwide. There are plenty of healthcare firms in the race to develop a blockbuster treatment for the condition.
However, there’s an argument the stock has been oversold on a single news event. The study is ongoing and it’s difficult to reach a definitive judgment on the drug’s prospects until further analysis has been conducted.
Business fundamentals
There’s more to AstraZeneca’s business than a single drug. The company has a large moat and focuses on a wide range of therapy areas, including respiratory diseases, inflammation, cardiovascular and metabolic diseases, and oncology too. It has 178 projects in its pipeline.
The firm continues to make progress in key jurisdictions. Its Q1 performance in emerging markets was particularly strong and the company is solidifying its competitive advantage in the enormous Chinese market.
Plus, AstraZeneca’s flagship breast cancer drug Enhertu has already been approved for treatment in multiple countries. But it may have even more potential thanks to recent compelling results showing its effectiveness in shrinking other tumours.
A FTSE 100 stock to buy?
If investors are considering adding AstraZeneca shares to their portfolios, now could be a good time to do further research. The stock’s already showing signs of a recovery in this morning’s trading as investors digest the latest news.
After all, there’s considerable potential in the company’s pipeline, despite one disappointing trial.
That said, it’s not a cheap stock. With a price-to-earnings ratio of 44.7, AstraZeneca can’t afford too many underwhelming trials before investors start to question whether it’s overpriced.
Regarding my own portfolio, I already have a position in the company and I’m holding my shares. If there’s further downwards movement, I’ll consider buying some more.
