U.K. superinvestor Woodford takes up the sword to defend embattled AstraZeneca

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AstraZeneca CEO Pascal Soriot got some big shareholder backing in a blog post Thursday that called the investor response to new clinical data overblown.

AstraZeneca took arrows from all sides Thursday after it unveiled a miss in the much-anticipated Mystic trial. Its shares bled almost 16% of their value. But by day’s end, a champion stepped forward with his own barrage of opinion: Neil Woodford, the prominent U.K. fund manager who counts AstraZeneca as his largest single investment.

Overblown, Woodford argued in a Thursday blog post, after AZ’s London-listed shares dropped to 4,315 pence from 5,109—despite, as he pointed out, decent quarterly numbers and positive trial results for its targeted cancer drug Tagrisso.

Sure, AstraZeneca’s Imfinzi-based combination therapy—and the PD-L1 drug alone—didn’t hold off lung cancer progression in the Mystic trial. But that doesn’t mean the drugs won’t hit their bigger goal, extending patients’ lives, when those numbers are calculated next year, he wrote.

“In my view, today’s trial reading does not justify a 16% fall in the value of the company and it is not evidence of the failure of the drug, nor of the strategy, nor indeed of the rationale for my investment in AstraZeneca,” Woodford wrote, adding, “This is the failure of one part of a trial which, albeit important, is not a drug failure.”

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AstraZeneca isn’t all about Imfinzi, anyway, he said, and some analysts had made that point in their Thursday earnings notes. The Tagrisso data, from the Flaura trial in previously untreated patients with EGFR-positive lung cancer, could indeed give that drug a boost, and it had delivered a “solid” $232 million in sales for the quarter.

Then again, that result was expected, Bernstein analyst Tim Anderson noted. The Mystic data wasn’t. And without details on Tagrisso, there’s no way of knowing whether it will, as AstraZeneca figures, remake the standard of care.

“It will be important to see the magnitude of the benefit to better assess whether physicians will ‘phase’ their use of older anti-EGFR therapies first, despite results,” Anderson said in a Thursday note. The company offered “[n]o comment on the magnitude of benefit, which needs to be very compelling given competition and future generics,” he added.

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Woodford called the Flaura results “very good news,” citing its “significant and clinically meaningful progression free survival benefit.” He also pointed to a somewhat more controversial development—one that he figured is “possibly of even greater importance”—which is AZ’s decision to share its rights to the PARP inhibitor Lynparza with Merck & Co., which will put that drug and an experimental AstraZeneca med. selumetinib, into its pipeline of combo trials with Keytruda, the PD-1 drug that competes with AZ’s Imfinzi. It’s a deal worth up to $8.5 billion, $1.6 billion of that up front.

“This is clearly a very significant financial deal,” Woodford noted. “It is also a very significant endorsement of the potential of these two small molecule drugs (Lynparza and selumetinib) in broader cancer settings, in combination with the two companies’ immuno-oncology agents.

“In my view, this is yet more evidence of the commercial potential across AstraZeneca’s pipeline, which the market has seen today pivoting only on the Mystic trial,” Woodford said.

Other investors and market watcher had somewhat different thoughts on the matter, given that AstraZeneca has relied repeatedly on “externalizing” assets over the last few years to boost its current top line. The Merck collaboration may indeed pay off in blockbuster combinations. But that’s a maybe—the PARP inhibitor-checkpoint inhibitor approach isn’t proven yet—and Lynparza already has a revenue stream likely to grow significantly, analysts said.

Finally, in what could be seen as a shoulder-clap for CEO Pascal Soriot, Woodford defended his case for socking so much money into AstraZeneca. And Soriot could use the backup; rumors that he was interviewing for, and likely to take, the CEO post at Teva hit AZ’s shares a couple of weeks ago and put him on the hot seat during yesterday’s earnings announcement, despite his repeated promise that he’s “not a quitter.”

Much of the company’s progress “is more visible today than at any stage since its CEO, Pascal Soriot, set out his strategic goal to double sales by 2023,” Woodford said.