Why AstraZeneca Stock Got Thumped on Thursday

Key Points

• It might be gearing up to pay billions of dollars to participate in a drug program currently in development.

• Its would-be partner is an American biotech that has earned a lot of attention lately.

AstraZeneca (NASDAQ: AZN) might soon be on the hook for an eventual 11-figure payout, and investors weren't all that comfortable with this. A Bloomberg article published Thursday morning said that the company is pursuing what might end up being an expensive partnership with a biotech.

A cautious market traded AstraZeneca stock down by more than 2% following the report, on a day when the S&P 500 index landed firmly in positive territory with a 0.8% gain.

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That's one big price tag

The article that dinged AstraZeneca was a Bloomberg piece asserting that the company is in discussions with Summit Therapeutics (NASDAQ: SMMT) on a formal partnership.

Image source: Getty Images.

The article, which cited unidentified "people familiar with the matter" as its sources, stated the two companies might collaborate on ivonescimab. This is a cancer drug licensed by Summit (from its developer, Akeso) for numerous jurisdictions outside of Akeso's native China, including North America and Europe.

According to Bloomberg, AstraZeneca and Summit are currently working out the details of such an arrangement. The article's sources added that an upfront payment of several billion dollars could be involved in any deal; it did not get more specific. One figure mentioned was $15 billion, which is apparently a total in upfront monies and milestone payments Summit might eventually earn.

Financial strength

AstraZeneca is a global healthcare incumbent that's large, sprawling, and well financed -- at the end of its latest reported quarter, the U.K.-headquartered company had more than 4 billion British pounds ($5.5 billion) in cash alone. Still, $15 billion is a huge amount, even when spread over the lifetime of an in-development drug's lifecycle.

I wouldn't be overly concerned about this if I were an AstraZeneca shareholder. In fact, I'd be encouraged. There aren't a great many oncology development programs that have shown as much potential as ivonescimab, and if it ends up fulfilling its promise it could easily be a blockbuster drug. I think it might be smarter to be a buyer than a seller of AstraZeneca at the moment.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Summit Therapeutics. The Motley Fool recommends AstraZeneca Plc. The Motley Fool has a disclosure policy.