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AstraZeneca’s Share Price Is Volatile, Depends on Lesinurad

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Lesinurad decision

The FDA (U.S. Food and Drug Administration) is expected to decide on lesinurad’s approval in the US market by December 29, 2015, the Prescription Drug User Fee Act (or PDUFA) date.

Biotechnology and pharmaceutical industry investors in the United States consider a drug’s PDUFA date important for the drug’s innovator company. The FDA’s decision is one of the key drivers affecting the company’s future revenues and profit margins.

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AstraZeneca’s share price

The above graph shows that AstraZeneca’s (AZN) share price fell gradually from $35.20 on January 2, 2015, to a low of $30.30 on August 25, 2015. The fall in the company’s share price was due to reduced sales of its two blockbuster drugs, Nexium and Crestor.

Nexium, an acid reflux drug, lost its patent protection in May 2014. Crestor, a cholesterol-lowering drug, will go off patent on January 8, 2016. Because of the continuing patent cliff and increased generic competition, AstraZeneca witnessed reduced profit margins in the first half of 2015. Its share price fell further due to the increased turmoil in Chinese markets, which affected overall investor sentiment.

AstraZeneca’s share price, however, witnessed a strong rise after November 13, 2015. This was due mainly to FDA approval of the company’s lung cancer drug Tagrisso (osimertinib). The drug has a strong efficacy and safety profile and has been launched at a price of $12,750 per month. It’s expected to give tough competition to other lung cancer drugs such as Pfizer’s (PFE) Xalkori (crizotinib), Novartis’s (NVS) Zykadia (ceritinib), and Bristol-Myers Squibb’s (BMY) Opdivo (nivolumab). AstraZeneca expects Tagrisso to earn peak sales of about $3 billion. Peak sales is an estimation of the maximum revenues that a drug can earn in its life cycle.

If lesinurad is approved, AstraZeneca is expected to continue its uptrend, buoyed by a strong addition to its gout portfolio.

Valuations

AstraZeneca’s forward PE (price-to-earnings) multiple rose from 14.8x on October 21, 2015, to 16.8x on December 7, 2015. This rise in the valuation multiple is indicative of the positive opinion held by the investor community regarding the company.

Investors can participate in the upside potential of lesinurad yet avoid excessive company-specific risks by investing in the Guggenheim BulletShares 2020 Corporate Bond ETF (BSCK). AstraZeneca accounts for 0.48% of BSCK’s total holdings.

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