AstraZeneca (NYSE:AZN) recently impressed a crowd of oncologists at the annual San Antonio Breast Cancer Symposium with surprisingly good clinical trial results. In a nutshell, it looks like an experimental drug that the company is developing in partnership with Daiichi Sankyo (OTC:DSNKY) could become a great new option that works where others have failed.

Some analysts think annual sales of the drug, trastuzumab deruxtecan, could top out above $7 billion, but there are potential hazards on the road to blockbuster sales. Here's what you should know before buying any shares of the giant pharmaceutical company. 

Three happy scientists.

Image source: Getty Images.

Game-changing results

It's nearly impossible to elicit a response from HER2-positive tumors that stubbornly return after several lines of therapy. That's why oncologists were thrilled to learn trastuzumab deruxtecan shrank tumors for 60.9% of patients treated in a pivotal study named Destiny-Breast01.

It also looks like the results are durable, since a majority of patients didn't exhibit signs of disease progression for more than 14.8 months. These results would be impressive for patients on their second round of standard treatment, but the median number of previous treatments among the patients tested was six.

Why the surprise?

AstraZeneca raised a lot of eyebrows when it offered Daiichi Sankyo a whopping $1.35 billion up front to develop and commercialize trastuzumab deruxtecan. AstraZeneca's also on the hook for milestone payments that could reach $5.5 billion. 

More than 20 years ago, Herceptin from Roche (OTC:RHHBY) became the first breast cancer therapy to aim for a specific target, HER2, which can be found on and in aggressive tumor cells that threaten one-fifth of all breast cancer patients. Trastuzumab deruxtecan is the same antibody as Herceptin, plus it's attached to a miniature chemo bomb that enters HER2-positive cancer cells before it explodes.

AstraZeneca's antibody-drug conjugate (ADC) isn't the only drug of its kind used to treat HER2-positive breast cancer. Kadcyla, also from Roche, is another Herceptin-based ADC that shrank tumors for just 44% of relapsed HER2-positive patients.

Since trastuzumab deruxtecan is an ADC that employs the same antibody as Kadcyla, few were expecting Astra's candidate to outperform Roche's drug while treating patients who had already relapsed following treatment with Kadcyla. 

Scientists in hazard gear looking through microscopes.

Image source: Getty Images.

Look forward

When Roche launched Kadcyla in 2013, the Swiss pharmaceutical company thought the drug would be generating annual sales north of $4 billion by now. Sales have been somewhat disappointing, but $1 billion during the first nine months of 2019 is nothing to sneeze at.

Since trastuzumab deruxtecan produced such impressive results for a population that's much more difficult to treat than the patients in Kadcyla's pivotal study, it stands to reason that it can probably outperform Kadcyla's revenue generation as well.

We'll know more when Astra presents results of Destiny-Breast03, a head-to-head study against Kadcyla with HER2-positive patients following their first relapse. Kadcyla is currently standard care for this indication, but perhaps not for much longer. Results from Destiny-Breast03 are expected next year.

Safety concerns

The Food and Drug Administration has already begun reviewing an application for trastuzumab deruxtecan, and an approval decision is expected in the second quarter of 2020. Although there's little doubt regarding efficacy, there's a chance the candidate's safety profile won't hold up. 

During Destiny-Breast01, a troubling 13.6% of patients presented some degree of lung damage that an independent reviewer described as related to treatment. There were four patient deaths due to interstitial lung disease, which is a blanket term for anything that scars and stiffens lung tissue.

Every drug presents some level of risk, and the FDA always balances that risk against perceived benefits. Since trastuzumab deruxtecan went a long way to help patients who had run out of treatment options, approval for heavily pre-treated patients seems likely.

Potentially fatal lung damage is not a common side effect of cancer therapies. Astra's ADC most likely exacerbated an existing condition, which means the FDA can add a relevant warning to the drug's label, instead of denying approval altogether.

Money balanced by risk.

Image source: Getty Images.

A good stock to buy now?

During the first nine months of 2019, AstraZeneca reported product sales that grew 13% compared with the prior-year period thanks largely to a roster filled with successful new cancer treatments. Over the same time frame, sales of the company's Tagrisso, Imfinzi, and Lynparza grew 82%, 182%, and 93%, respectively.

Sales from Astra's top three cancer drugs alone reached a combined $4.2 billion during the first nine months of the year, and they'll probably have another great year in 2020. Right now, oncology is responsible for around 38% of total sales, and this will climb significantly after AstraZeneca divests cardiovascular drugs with declining sales.

Recently the stock has been trading at 26 times forward earnings estimates, which is the same as the average stock in the benchmark S&P 500 index. With an oncology segment growing by leaps and bounds, though, earnings will probably grow a lot faster than average.

Put it all together, and AstraZeneca looks like one of the best pharma stocks that you can buy right now.