Leading bank sees AstraZeneca upside seen in hypertension drug, tempers lung cancer hopes

UBS reiterated its 'buy' rating for AstraZeneca (AZN), setting a 12-month price target of 14,200p, based on the potential of hypertension drug baxdrostat, for which they increased peak sales estimates to $4 billion following positive trial data. However, UBS remains cautious on Dato-DXd's AVANZAR trial for lung cancer, citing mixed data and assigning a lower probability of success; the bank believes AstraZeneca can reach its revenue targets primarily through other indications of Dato-DXd and growth in cardiovascular.

Analysis

UBS has maintained a 'buy' rating on AstraZeneca PLC (LSE:AZN), projecting a 12-month price target of 14,200p, which represents a potential upside of over 30% from the 10,907p share price at the time of reporting. This optimistic outlook is significantly driven by the potential of baxdrostat, a treatment for resistant hypertension, with its Phase 3 BaxHTN trial results anticipated in the third quarter. UBS has increased its peak sales estimate for baxdrostat from $3bn to $4bn, citing encouraging data from the BrigHTN study and strong results from a competitor, assigning a 58% probability to achieving these peak sales, which would contribute 1.1% to UBS's net present value model for AstraZeneca. Conversely, UBS expresses caution regarding Dato-DXd (Datroway) in the AVANZAR study for first-line non-small cell lung cancer, due to mixed data in later-line studies and assigns only a 25% probability of success for this specific trial, contributing 0.8% to NPV. However, the bank believes current peak sales forecasts of $3bn to $4bn for Dato-DXd are attainable through other indications, such as EGFR-mutant lung cancer and breast cancer, irrespective of AVANZAR's outcome. These drug developments are critical for AstraZeneca's ambition to reach $80bn in annual revenue by 2030, a target UBS currently models slightly below at $75.5bn, based on 5% drug sales growth and 6% total revenue growth. UBS highlights that the cardiovascular pipeline, particularly baxdrostat, presents a more substantial potential upside catalyst in 2025 than the discussed oncology developments. The company's shares responded positively, rising 58p to 10,964p.

Key Decisions for Investors

• Investors should consider the significant upside potential highlighted by UBS's 'buy' rating and 14,200p price target, particularly focusing on the upcoming Q3 results for the baxdrostat hypertension drug as a key catalyst.
• It is prudent to monitor the Phase 3 BaxHTN trial results closely, as positive data could lead to substantial upgrades in consensus sales forecasts for baxdrostat and positively impact AstraZeneca's valuation.
• Investors should differentiate the risk-reward profile between baxdrostat and Dato-DXd's AVANZAR trial, recognizing that while AVANZAR faces higher uncertainty, UBS's valuation for Dato-DXd is not solely dependent on this trial's success.
• Consider that the cardiovascular segment, specifically baxdrostat, is identified as a more significant near-term value driver for AstraZeneca in 2025 compared to the specific lung cancer indication for Dato-DXd, which may warrant a nuanced view of the company's growth prospects.