According to data from S&P Global Market Intelligence, AstraZeneca's (NYSE:AZN) shares fell by more than 8% last month. The main culprit behind the drugmaker's poor showing in November was a disappointing third-quarter earnings release. Of particular note, AstraZeneca missed consensus on Q3 revenue by a sizable $235 million according to S&P Global Market Intelligence estimates due to the increasing threat of generic competition for former top-selling medicines such as the cholesterol drug Crestor..
Topping it off, the company also decided to abandon its plans to seek an early approval of its immunotherapy drug durvalumab in head and neck cancer, citing the shifting competitive landscape after falling well behind Merck's (NYSE:MRK) and Bristol-Myers Squibb's (NYSE:BMY) rival checkpoint inhibitors, Keytruda and Opdivo, respectively, for this indication.
Unlike its big pharma peers Bristol and Merck, Astra's stock failed to get much of a lift from Trump's insurgent victory last month, reflecting the market's deep concerns about the drugmaker's ongoing struggles with the patent cliff.
The underlying issue is that Bristol and Merck have both successfully brought new franchise-level drugs to market to offset their own patent problems to a large degree. Astra, on the other hand, simply hasn't had nearly as much luck with its next mega-blockbuster candidate durvalumab in the clinic. The U.S. Food and Drug Administration (FDA), after all, placed a temporary partial clinical hold on durvalumab for its ongoing head and neck squamous cell carcinoma trial earlier this year as the result of some unexpected bleeding events in patients receiving the experimental immunotherapy. That clinical hold has since been lifted, but Astra's stock hasn't recovered even after the company resumed recruiting patients for trials.
Astra's top line is forecast to fall by another 5.8% next year due to management's inability to get ahead of the company's dramatic bout with the patent cliff over the last few years.. As such, there's a growing chance that the drugmaker will be forced to phase out its rich dividend program altogether sometime soon.
The fact of the matter is that the drugmaker's 12-month, trailing payout ratio stands at an unsustainable 144%, and its free cash flows over the past year came in at a meager $2.76 billion. Making matters worse, Astra's last stated cash position was a mere $4 billion. That's rock bottom for a big pharma, especially for one with a top-tier yield.
Given that Astra's plans to take on Bristol and Merck's rock star checkpoint inhibitors have yet to pan out and the company's top line is suffering as a direct result, investors may want to sidestep this rather risky big pharma stock right now.