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A FTSE 100 giant with 20% upside to consider

2017 is going to be a transformational year for the UK’s second largest pharmaceutical group, AstraZeneca (LSE: AZN)

This year promises to be a make or break year for the business as it awaits the preliminary results of the tests of key treatments which are designed to help propel the group to its $45bn revenue target. At the same time, over the next six months, the company will continue to feel the pressure from generic competitors. 

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Last year the firm’s key Crestor drug came off patent and started to lose market share to competitors. This trend is expected to continue throughout 2017 but year-on-year comparisons will ease in the second half.

Landmark year

It’s difficult to try and put into words how much of a landmark year 2017 will be for AstraZeneca and the pharmaceutical industry in general.

In the middle of 2017, the company is expecting the results of the MYSTIC clinical study. This study is testing a combination of immunotherapy drugs durvalumab and tremelimumab in previously untreated lung cancer patients. Positive results could not only unlock billions in additional revenues for Astra, but it could spark a wave of testing of new cancer treatments. 

Success with the MYSTIC study as well as recently approved cancer pills Tagrisso and Lynparza, should help transform AstraZeneca’s business. If the trials fail, it could cost it as much as $6.2bn per annum in lost revenue, not what the market would like to hear when sales are already under pressure due to Crestor’s decline.

20% higher? 

If MYSTIC does show results, shares in Astra could rise by 20% or more back to their all-time highs as investors regain confidence in the group. 

There has been some concern that the company’s trial is not going to plan when it announced earlier this year that it had altered the way the trial was being conducted. This announcement shook the confidence of investors, and in the weeks after, shares in the company declined by around 10%. Investors are right to be worried as it is estimated that the study has a less than 50% chance of success. But if it goes to plan, as noted above, the payoff could be huge.

Time to buy? 

So the question is, should investors buy Astra before these results? As the company is pinning its future on one key product, there’s more risk here than a typical pharmaceutical business. That being said, the group does have other treatments in its repertoire, and these will pick up some of the slack from those falling Crestor sales. Nonetheless, it is going to be difficult for Astra to replace the $13bn in lost sales Crestor produced at its peak.

Overall, if you’re willing to take a risk, the company could have significant upside if MYSTIC trials go to plan.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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