Morgan Stanley downgrades AstraZeneca after failed drug trial

MS said it still expects above-sector growth post Mystic, but this will be slower. The bank said the Mystic trial setback drove an 18% cut to its 2021 earnings per share estimates, close to the market reaction. This leaves the stock at a 300 basis points premium to EU pharma on 2018 price to earnings.

"This is arguably not expensive, and AZN appears fairly valued as it now offers a 2017-20 estimated EPS CAGR of 11%, reduced from 15% previously, and closer to peers' average of 8%."

In the longer term, Morgan Stanley still sees value creation driven by the oncology transformation and new product launches. It still anticipates operating margin recovery from 2018, as guided by management. However, it reckons it will now be softer and cut its 2021 EBIT margin estimate by 350 basis points to 34.1%.

Shares in AstraZeneca tanked on Thursday after it said the combination of two immune-oncology drugs designed to boost the immune system's ability to kill cancer cells was no better than standard chemotherapy at shrinking advanced lung cancer tumours.

At 0930 BST, the shares were up 0.8% to 4,361.17p.