AstraZeneca launches UK's biggest cash call this year to fund £5.2bn Japanese cancer deal

AstraZeneca PLC (LON:AZN) shares fell on Friday as the drugs giant came to the well with the biggest fundraiser this year by a British company.

The FTSE 100-listed firm has announced a £2.7bn share placing – cash that will be used to fund a cancer collaboration, pay down a tranche of debt and for “general corporate purposes”.

READ: AstraZeneca posts first rise in annual product sales for almost ten years

Just over £1bn will go into the commercial tie-up with Japanese group, Daiichi Sankyo, which has developed trastuzumab deruxtecan, a potential breakthrough treatment for HER-2 positive strains of the disease, such as certain forms of breast and gastric cancers.

Under the terms of the deal, which could be worth a further £4.2bn in milestones, the companies will jointly develop and commercialise the new drug everywhere except Japan.

The first regulatory submission is scheduled for the second half of 2019 for patients in advanced or hard-to-treat breast cancer.

The treatment is also being developed for HER2-mutated or HER2-overexpressing cancers such as non-small cell lung cancer, gastric and colorectal cancers.

AZ chief executive Pascal Soriot said he thought trastuzumab deruxtecan could become a “transformative new medicine” for the treatment of HER2-positive breast and gastric cancers.

Peak sales of the new product are forecast to be in the order of £3.4bn.

The financial impact of the deal will be felt from 2020 onwards, AZ said, with a “significant” effect from 2023. Earnings per share this year will be unaffected by the cash call, which has yet to be priced.

‘Relatively high-risk roll of the dice’

Nicholas Hyett, equity analyst at Hargreaves Lansdown commented: “Astra’s been thinning its portfolio for some time, as it looked to boost near term cash flows and keep the dividend ticking over while the pipeline matured.

“That strategy seems to have paid off, with product sales showing signs of long term growth last year. However, Astra clearly felt that pipeline was need of a shot in the arm, and this deal represents a major boost to the oncology portfolio.”

However, he added: “It’s a higher risk deal though, the drug in question has yet to make it out of the labs and hasn’t been approved in any markets.

“There’s always the risk that the drug falls at the final hurdle and ends up being worth nothing at all, but then that’s a fundamental part of the pharmaceutical industry.”

Hyett concluded: “The risk of failure probably goes a long way to explaining why Astra have decided to fund the deal with an equity raise rather than debt, there’s no obligation to pay shareholders if things don’t work out as expected, whereas lenders demand their pound of flesh regardless.”

“Ultimately this is a relatively high-risk roll of the dice, only time will tell whether it it’s a stroke of genius or leaves shareholders nursing a hangover.”

In late morning trading in London, AstraZeneca shares were 5.3% lower at 6,150p.

 – Adds analyst comment, share price –

Story by ProactiveInvestors