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Why AstraZeneca Stock Is Crashing Today

By George Budwell – Jul 27, 2017 at 7:34AM

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AstraZeneca swings and misses with Imfinzi. What now?

What happened

British pharma giant AstraZeneca's (AZN 0.11%) comeback story took a major blow this morning after the company reported that the all-important Mystic trial assessing Imfinzi (durvalumab) in combination with tremelimumab missed its primary endpoint of improving progression-free survival in non-small cell lung cancer (NSCLC) patients. Astra's shares fell by a whopping 15.6% in pre-marketing trading on the back of this news, which is the steepest decline in the company's history. 

Man holding his forehead in response to a falling stock.

Image source: Getty Images.

So what

Astra's top-line has been cratering lately due to the loss of exclusivity for top-selling medicines such as the cholesterol drug Crestor. In response, the drugmaker has been investing heavily in its cancer immunotherapy pipeline, where the checkpoint inhibitor Imfinzi was supposed to take a leading role. This devastating clinical setback, however, puts a huge dent in the company's plan of reversing this downward trend and subsequently producing industry-leading levels of growth heading into 2023. 

Now what

One of the first casualties of Imfinzi's initial flop in NSCLC could be the company's sky-high dividend yield. While the drugmaker might end up with a juicy yield exceeding 6.6% if this move southward holds, the fact of the matter is that Astra may need to start conserving capital to splurge on a major acquisition soon. Astra, after all, already has a payout ratio of 104%, as well as a sizable amount of leverage on its balance sheet, illustrated by its hefty debt to equity ratio of 118%. 

The bottom line is that Astra is now in a seriously bad position. Imfinzi no longer appears capable of becoming the company's next franchise-level drug, and the drugmaker's top flight dividend seems destined for a noteworthy reduction -- or an outright suspension -- soon. So, while it might be tempting to grab some shares on this double-digit drop, it might be best to exercise caution with this struggling big pharma stock for the moment. 

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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