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Recent approvals of Tagrisso in the first-line lung cancer setting have AstraZeneca management optimistic about the $3 billion sales target it set several years ago. But some analysts have higher hopes—and one just came up with a bullish estimate that’s out of the park.

UBS analyst Jack Scannell predicts in a Monday note that Tagrisso sales could surpass $5 billion by 2022 and reach $5.8 billion in 2023, with $2.5 billion of that in the U.S. That’s significantly higher than the crowd, Scannell pointed out, at 41% above consensus for 2023 sales globally, and 47% higher than 2023 estimates for the U.S.

Undeterred, Scannell crowned Tagrisso as AstraZeneca’s “most important drug,” and not just because of its top-line contribution. The drug is quite profitable, the analyst noted, modeling its gross margin at likely over 95% when all is said and done.

“It has relatively low incremental selling costs given Astra’s other lung cancer products, use in a very well defined patient population, and low competitive intensity plus good efficacy and tolerability among eligible patients,” Scannell says of Tagrisso.

Even though UBS is now way ahead of consensus on Tagrisso, Scannell figures other analysts will boost their estimates after they peruse new prescription data and the company’s second-quarter numbers.

First approved as a second-line therapy for EGFR-mutated non-small cell lung cancer, Tagrisso entered the first-line realm in the U.S. in April, and an EU nod followed in June. Scannell’s team is seeing a fast ramp-up in the first-line market already, he said. By the end of this year, UBS expects Tagrisso will win over 68% of eligible first-line patients, and by 2020, that number will shoot up to 95%, Scannell predicts. Before the first-line approval, Tagrisso reeled in $338 million in first-quarter sales.

The U.S. and European markets aren’t the only ones delivering for Tagrisso, either, the analysts pointed out. During AZ’s first quarter earnings call, oncology business head David Fredrickson said EGFR mutation prevalence rates in East Asian countries like Japan and China are 30% to 35%, far higher than around 15% in the U.S. and Europe.

AstraZeneca recently rolled out Tagrisso in China and expects an additional first-line nod from the Japanese regulator later this year. Scannell’s team currently estimates Japan will be worth about 45% as much as the U.S. market for the drug. China will be worth about 20% as much as the U.S., mainly because of the huge price cuts AZ is expected to take to get the drug onto the country’s national insurance program.

Companywide, the UBS analysts raised their 12-month price target on AZ shares to £56 from £45.5. It also upped 2026 earnings targets for AstraZeneca by 13%.

One goal AZ may not meet? A core operating margin of 35% by 2023, UBS said. That’s because of the company’s recent penchant for licensing out assets. As a recent example, the company sold off Seroquel and Seroquel XR rights in Britain and China to China’s Luye Pharma. While the strategy can get AZ quick cash up front, it could drag down the company’s future profits.

“[Our analysis] suggests that consensus underestimates the future profits that are forgone when Astra trades them for up-front payments. The risk is either markets see the problem and reduce long-term profit forecasts, or else Astra makes pre-emptive cuts to [externalization revenue and other operating income], forcing a cut in near-term consensus,” Scannell writes.

By Angus Liu

Source: Fierce Pharma