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AstraZeneca's ZS-9 Delay Highlights Broader Risk Of Pipeline-Led EPS Growth Outlook

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AstraZeneca's ZS-9 Delay Highlights Broader Risk Of Pipeline-Led EPS Growth Outlook
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AstraZeneca plc (ADR) (NYSE: AZN) announced that the US FDA had issued a complete response letter, or CRL, for its hyperkalaemia asset ZS-9. Following a preapproval manufacturing inspection, the CRL raised concerns around the manufacturing process and product quality.

Goldman Sachs’ Keyur Parekh said in a report that this development could cause a delay of at least 9 to 12 months. ZS-9, a treatment for chronic high serum potassium level, was a key pipeline asset of ZS Pharma Inc (NASDAQ: ZSPH), which AstraZeneca acquired in late 2015. The company confirmed that the FDA had not asked for additional clinical data.

Related Link: AstraZeneca Remains Committed To Development Of ZS-9 Despite Letter From FDA

Implications Of The News

“While the news in itself is a small (unexpected) negative, we believe it highlights the broader risk of a pipeline-led EPS growth outlook. This adds to other recent AZN pipeline disappointments (treme, olaparib in gastric cancer etc.),” analyst Keyur Parekh wrote.

The consensus forecast for 2017-2020 sales of ZS-9 is $140-$430mn. Parekh noted that the approval being delayed by a year would be a headwind of about 1-2 percent to the 2017-2020E EPS estimates.

Competition

The analyst mentioned that even if ZS-9 is approved, it will compete with Relypsa Inc’s (NASDAQ: RLYP) Veltassa, which was approved in October 2015.

Currently, Veltassa requires patients to not take other oral medications until six hours from dosing. Relypsa recently submitted requested the FDA for label changes based on a Phase 1 Drug-Drug interaction study, which showed no impact to absorption with the tested drugs, when dosing with Veltassa was separated by three hours.

“Any positive update in Veltassa’s label could impact ZS-9’s commercial opportunity,” Parekh commented.

AstraZeneca is included in Goldman Sachs’ Pan-Europe Sell List, with a price target of 3,700p.

Latest Ratings for AZN

DateFirmActionFromTo
Dec 2016Leerink SwannUpgradesMarket PerformOutperform
Sep 2016PiperJaffrayInitiates Coverage onOverweight
Sep 2016Exane BNP ParibasDowngradesOutperformNeutral

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