Stockbroker tips from ShareCast

Broker snap: Failure priced in at Astra

'Buy on weakness' is the recommendation of Panmure Gordon which remains a fan of AstraZeneca even after the company announced a disappointing trial result for its lung cancer treatment Recentin.

'We expect the stock to come under pressure but we advocate buying on weakness as the mid-term guidance story remains intact, because Recentin was a high risk development,' argues analyst Savvas Neophytou.

Recentin went head to head with Roche's Avastin product in the trial and 'did not meet the pre-specified criteria for the primary endpoint of non-inferiority in progression-free survival,' a statement from Astra disclosed.

Panmure Gordon noted that the test was carried out on first-line Metastatic Colorectal Cancer and that there was no statistically significant difference between treatment arms on the efficacy endpoints examined, which it found encouraging, 'given how strong Avastin is in this population.'

The broker concedes, however, that better news will be needed in order for the drug to achieve registration status. 'It should be noted that a second pIII trial (HORIZONII) is still ongoing and could well emerge with positive data, so we are not making any adjustments to forecasts yet,' Neophytou said.

The broker is expecting some downgrades to profit forecasts from other brokers as a result of the Recentin development but 'with launch costs deferred, we do not expect significant downgrades on the bottom line.'

Panmure Gordon acknowledges sentiment is likely to be adversely affected by the news but suggests that with the price/earnings ratio standing at a lowly 8.2 'one would argue failure is priced in.'

The broker has a 'buy' recommendation on the stock and a price target of 3300p.

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