WSJ on AZN
By
Helen Thomas
Nov. 18, 2014 10:44 a.m. ET
0 COMMENTS
AstraZeneca ’s pipeline has plenty of ballast. But the U.K. pharmaceutical company could still use extra buoyancy for the next couple of years.
Astra essentially faces a timing issue. Its pipeline looks better than ever: Astra said Tuesday it should submit up to 16 new molecules or major extensions to existing treatments to regulators in 2015 and 2016. The strength of Astra’s oncology business is becoming clear: by 2020, it aims to bring six new cancer treatments to market; it has an increasingly impressive position in immuno-oncology.
This, in time, will reshape Astra’s business. Half its pipeline is biologic medicines, which tend to be more durable than easily copied pills. More specialty medicines, which command higher prices, should mean better profitability.
But this won’t really be felt until after 2017. Leave aside the ambitious sales target of $45 billion by 2023, made while Astra was defending itself from Pfizer ’s takeover approach. Astra aims to hold 2017 revenues flat with 2013. That is despite the drag from drugs losing patent protection and a more competitive U.S. pricing environment in diabetes and respiratory. Even assuming total pipeline success, Barclays puts Astra $2 billion short of its 2017 target.
At 17.5 times forecast earnings, Astra still trades at a slight premium to the sector. But support from takeover talk should be waning. Pfizer could return in a week’s time under U.K. rules. But its alliance with Merck KGaA to develop the latter’s immuno-oncology prospect suggests the U.S. company has moved on.
It would be foolhardy for Pfizer to have another tilt at Astra without a good chance of success. AbbVie ’s abrupt ditching of Shire confirmed the worst suspicions about tax-motivated deals. And Astra’s promising pipeline could make agreement on valuation more challenging than ever.
In the near term, cost cutting as well as one-off income from deals could support earnings. But Astra may need additional help: results are expected early next year for use of blood-thinner Brilinta in non-acute patients who have suffered a heart attack within the past three years. Success could shore up confidence in Brilinta’s efficacy, encouraging physicians to prescribe the drug for longer. More important, it could potentially double the patient population for Brilinta, which Astra thinks could sell a risk-adjusted $3.5 billion in 2023.
Astra’s pipeline could translate into a more robust business geared around specialized, biologic medicines. But it is still a mass-market pill that could make for smoother sailing toward that goal.
Write to Helen Thomas at helen.thomas@wsj.com
