Just over three summers ago, AstraZeneca plc (NASDAQ:AZN) CEO Pascal Soriot convinced shareholders to reject a generous buyout offer from Pfizer with promises that drugs in its pipeline would deliver even greater returns. While the company has had some success since then, keeping that promise would have required stellar results from the Mystic trial.

Although the company had good reasons to hope for success, cancer drug development is an extremely risky venture. That's why I thought AstraZeneca shareholders should have been furious three years ago when it turned down Pfizer's $118 billion offer for a roll of the dice.

Worried business person biting his thumbnail.

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Since announcing that tremelimumab and Imfinzi failed to outperform standard chemotherapy, AstraZeneca's market cap has fallen about $11.5 billion to $74.7 billion. It will probably bounce around some more until the dust from the pipeline explosion settles. After taking a lickin' in response to the failed Mystic trial, AstraZeneca stock has fallen low enough to make its dividend look mighty attractive, but investors are right to question its sustainability. Here's a look ahead to see if now is a good time to buy, or if things could get even worse for the big British pharma stock.

Is the dividend safe?

The British company makes two dividend payments each year, which it declares along with its six-month and full-year earnings reports. The first is generally the smaller of the two, and the company has already announced it will remain unchanged at $0.90 per share. If the second-half dividend remains unchanged from last year at $1.90, investors can look forward to an attractive 9.4% yield, if purchased at the recent price of $29.85 per share.

With the average dividend-paying stock in the S&P 500 offering a paltry 1.97% yield at the moment, the urge to line your portfolio with AstraZeneca shares is understandable. A closer look, though, might change your mind. During the 12 months that ended this June, the company shelled out $5.9 billion to shareholders in the form of dividend payments but generated just $2.5 billion in free cash flow

If the company had plenty of cash on hand and a chance to generate billions in sales of Imfinzi and tremelimumab, buying Astra shares for the dividend might make sense. Considering the Mystic trial flop and a working capital balance that was $1.4 billion in the red at the end of June, I wouldn't be surprised if the company slashes its payout soon.

Scientist examining a brightly lit flask.

Image source: Getty Images.

Silver lining?

While results from the Mystic trial suggest Imfinzi probably won't become a new treatment option in the enormous first-line lung cancer indication, it still has blockbuster potential. Roughly two and a half years ago, Opdivo and Keytruda became the first FDA-approved therapies that make it hard for cancer to shut down an immune system attack by exploiting the PD-1 pathway. In the second quarter this year, Merck & Co. recorded $881 million in Keytruda sales, and Opdivo added a stunning $1.2 billion to Bristol-Myers Squibb's top line.

Although Imfinzi is the fifth PD-1 inhibitor to earn approval, global spending on cancer medicines is expected to top $150 billion by 2020. That's a big jump from the estimated $107 billion spent in 2015, and drugs like Imfinzi that make it easier for the immune system to battle cancer are expected to lead the charge.

At the moment, Imfinzi is only approved by the FDA to treat advanced bladder cancer patients, but it might have a shot at the much larger group of non-small cell lung cancer patients with tumors that can't be surgically removed. Interim results from an ongoing trial were good enough to allow the study to continue. If Imfinzi provides a significant survival benefit, it would go a long way towards helping the company sustain its dividend.

The company's best-selling cancer drug at the moment, Tagrisso, attacks tumors from a different angle than Imfinzi, but it might get to play a larger role on the lung cancer stage. Less than two years after earning its first FDA approval for the treatment of a genetically defined group of lung cancer patients that had progressed after treatment with a similar therapy, Tagrisso sales are already on pace to reach the $1 billion mark this year. That's impressive, but recently announced clinical trial data shows that Tagrisso provided a significant survival benefit for similar patients when given as a first-line treatment, which could give its commercial launch a big boost. 

A move to the front of the line would probably add another $1 billion to AstraZeneca's annual revenue stream. Although Tagrisso, Imfinzi, and other cancer therapies might not be enough to keep Astra's dividend on solid ground, it isn't time to toss the big pharma on the scrap heap just yet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.