Why AstraZeneca Stock Is Crashing Today

AstraZeneca swings and misses with Imfinzi. What now?

George Budwell
George Budwell
Jul 27, 2017 at 7:34AM
Health Care

What happened

British pharma giant AstraZeneca's (NYSE:AZN) 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. 


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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.