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Will this news give the AstraZeneca share price a shot in the arm?

2019 was filled with challenges: various geopolitical events tested the global economy as well as financial markets. But AstraZeneca (LSE: AZN) managed to end the year on a positive and encouraging note. Its drug Lynparza (olaparib) – which it has co-developed and co-commercialised with Merck (known as MSD outside of the US and Canada) – received regulatory approval for the treatment of pancreatic cancer.

With this approval, the drug – which was already in use for treating multiple forms of cancer – creates a niche in cancer treatment. The approval was provided by the US Food and Drug Administration.

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Lynparza is classified as a poly ADP ribose polymerase (PARP) inhibitor. It helps in saving cells’ DNA repair mechanism, which stops cancer cells from duplicating. In this manner, it stops the sustenance of tumors. The latest approval will allow it to be used by pancreatic cancer patients on whom chemotherapy had been ineffective even after 16 weeks of treatment.

A brief background

AstraZeneca and Merck had announced a collaboration on oncology in July 2017. At the time, Lynparza was used for ovarian cancer treatment and its pipeline had included breast, prostrate and pancreatic cancers, among others.

On the collaboration, Chief Executive Officer of AstraZeneca Pascal Soriot had said “By bringing together the expertise of two leading oncology innovators, we will accelerate Lynparza’s potential to become the preferred backbone of many immuno-oncology combination therapies as the world’s first and leading PARP inhibitor.”

As part of the collaboration agreement, Merck had decided to pay AstraZeneca up to $8.5 billion in total consideration, including $1.6 billion upfront, $750 million for certain license options and up to $6.15 billion depending upon successful achievement of future regulatory and sales milestones.

What does this approval mean for investors?

AstraZeneca stock has had an excellent 2019. Until December 30, its share price had increased by 31.5% for the year. Its profits have been great as well, powered by new medicine sales which surged by 62% to $2.7 billion in Q3.

Soriot’s outlined objectives for the collaboration with Merck, as stated above, indicate to me that the partnership has been able to achieve its chief aims. Its pipeline is continuing to be realised, which is a testimony to its drug quality. My takeaway from this is that its medicine sales, especially from the oncology vertical, would continue to be strong.

Political uncertainty has subsided in the UK but some headwinds still remain. Globally, economic challenges await the world in 2020. I believe that these factors could push investors towards defensive purchases like stocks of pharmaceutical companies in the first half of the year, which would benefit AstraZeneca.

Its P/E ratio, hovering at the 25 mark and over, is on the higher side, but its continued success with oncology medication indicates further momentum for its share price. Investors are also looking forward to the results from its POSEIDON trial. The initial results of the trial, being conducted for drugs treating lung cancer, were quite encouraging.

The new approval for Lynparza not only provides more treatment options for cancer patients – in my view, it may be beckoning a buying opportunity for investors as well.

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Divyansh Awasthi has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.