2023.03.20 3,500 to be the support

According to data from the U.S. Labor Department, applications for jobless claims in the U.S. for the week ending March 11 fell by 20,000 to 192,000 from 212,000. The four-week moving average dipped to 196,500, the eighth consecutive week below 200,000. Nonfarm payrolls rose by 311,000 in February, above the estimate of 225,000. Inflationary pressures in the U.S. have fallen for eight consecutive months.

CPI dropped 0.4% in February and was up 6% YoY. The PPI in February rose 4.6% YoY, lower than the 5.7% increase in January. Inflation data has slowed again, which may leave room for the Fed to slow the pace of interest rates hike.

Bid-ask spreads on U.S. treasuries touched the highest levels in six months amid growing concerns with the financial health of the U.S. banking sector. In view of the uncertainties in the banking system, the market expects the probability of a 0.25% increase in interest rates to be 60%, and the probability of no interest rate becomes 40%. Fed may even start to cut rates in June. In addition, 11 US banks injected a total of US$30 bn to rescue First Republic Bank (FRB) in hope of supporting investors’ confidence in the US banking sector. Although systemic risk in the U.S. banking industry is not high, the problem of Credit Suisse Group remains a concern. We expect the U.S. stock market to correct and the S&P 500 index to trade between 3,500 points and 4,200.

The U.S. banking system has further triggered a market panic, and the stock market may continue to come under pressure. Investors can pay attention to innovative pharmaceutical companies which are more defensive under the current environment.

Pfizer (PFE.US) announced its FY22 results. For 2022, the company’s revenue was US$100.33 bn, +23.4% YoY; net profit was US$3.14 bn, +44.4% YoY; basic EPS was US$5.59, +42.6% YoY. The company’s revenue growth in FY22 was mainly driven by the Covid oral drug Paxlovid and the mRNA vaccine Comirnaty.

Recently, Pfizer agreed to acquire Seagen which is an American biotechnology company with a consideration of US$43 bn. Seagen is a leading developer of antibody-drug conjugates (ADCs), which are a class of biopharmaceutical drugs designed as a target therapy for treating cancer. The revenue of Pfizer oncology business reached US$12.1 bn in FY22, accounting for about 12.1% of total revenue. The cancer drugs are on a rapid growth track. According to mgmt, Seagen has 24 approved cancer drugs, and 33 drugs are under clinical studies. The acquisition is expected to be completed by the end of 2023 or early 2024 and will expand Pfizer’s business in the field of oncology. It is recommended to buy at US$39.0, target at US$44.0, and stop loss at US$37.0.

AstraZeneca (AZN.US) is a global biopharmaceutical company focused on the research of diseases in the areas of oncology, CVRM (cardiovascular, renal, metabolic) and respiratory. In 2022, the company’s total revenue was US$44.351 bn, +19% YoY; net profit was US$10.318 bn, and EPS was US$6.66, +26% YoY.

In 2023, AstraZeneca and KYM Biosciences Inc. (a joint venture of Lepu Biosciences and Conoya) signed an exclusive global license agreement to develop and commercialize KYM’s ADC drug CMG901 for the treatment of relapsed or refractory gastric cancer and Gastroesophageal junction adenocarcinoma. AstraZeneca said that the company will commence more than 30 trials this year, 10 of which have the potential to achieve sales of more than US$1 bn. Mgmt expects revenue for 2023 to achieve high single digits to low double digits growth. Before 2030, the company intends to launch at least 15 commercial products. It is recommended to buy at US$63.5, target at US$71.5, and stop loss at US$60.0.