AZ 2012 outlook from the street

A paragraph from a WSJ article:

AstraZeneca revealed $381.5 million in charges Tuesday which will push 2011 profits to the lower end of the company’s forecast range.

The news didn’t go down well with investors, who are concerned about a series of pipeline failures and the company’s ability (inability) to cope with the expiration of patents protecting big earners, especially beyond 2016, namely the cholesterol lowering blockbuster Crestor and the anti-psychotic medicine Seroquel XR.

Navid Malik, an analyst at London-based Merchant Securities, said:

“It’s quite concerning when the company pushes out negative pipeline news at the end of the year and takes charges related to the drugs impacting earnings per share guidance–it gives us a worrying insight into 2012.”

Deutsche Bank analysts reckon the world’s biggest pharma companies face patent losses next year representing up to $12 billion of lost sales.

AstraZeneca looks particularly exposed because it has relatively few new drugs to replace blockbusters such as Nexium for heartburn and schizophrenia drug Seroquel. Generic competition and pricing pressures are also weighing on AstraZeneca’s sales. The group is hoping that a big push into emerging markets will take some of the pressure off. But many analysts believe the company might eventually be forced to use its cash pile to make an acquisition to replace lost revenues.

Deutsche Bank analysts believe AstraZeneca’s 2012 prospects hang on two key drugs: cholesterol drug Crestor and new blood thinner Brilinta. The real crunch for the London-based group will be for Crestor now that Pfizer Inc.’s Lipitor has gone generic, and sales developments for Brilinta.

The Deutsche Bank analysts said in a note:

“Disappointments on one or both, especially if the residual late-stage pipeline does not deliver, notably oral rheumatoid arthritis drug fostamatinib … could well prompt a change in group strategy.”
Credit Suisse analysts said earlier this month:
“We remain more cautious than the market on the gross margin impact from the loss of Seroquel in March 2012, the Brilinta launch, and growth in emerging markets.
“We expect the company will materially cut R&D in 2012. However, if the company is to remain a pure Pharma business, material further cuts to R&D are not feasible, in our view. We continue to see material risk that AZN makes a major acquisition.”

 

Odd how the article calls AZ's potential for an acquisition a "risk."

Any other company growing through acquisition would be good news.

 

An acquisition as a risk to an investor makes sense from the stockholder's point of view. Acquisitions are typically paid for with a mix of newly issued shares and cash, some of which may be borrowed funds, leading to increaded debt and debt service expenses. This then results in a dilution of stockholder value, leading to a somewhat diminished share price for pre-existing investors, unless the purchase is immediately accretive to earnings, which most pharma deals are not. The acquired firm typically sees a premium in its share price, but not the acquirer excepting unusual circumstances.
These analysts are looking at the possibility of a deal as a risk from the perspective of current shareholders, not from that of other stakeholders who might benefit depending on their situation from a deal.

 

A successful company has organic growth. It grows its current products and develops new products. Think Apple. It introduced the I Pod, then while continuing to grow that business it introduced the I Phone. Those businesses have continued to grow, then came the I Pad.

In an enviornment like this an acquistion can be a good thing if it brings intellectual property like patents that can contribute to organic growth.

Then consider AZ. Current products are declining, mostly because of patent expiration. Pipeline has had major failures. There is no organic growth. An acquistion by AZ would be to obtain current products to keep AZ afloat.

And if you are a pharma company with a great product or products, what do you need AZ for. Any AZ acquistion would probably be of another company struggling to survive.
This would bring its own set of problems and risks.

And its a temporary fix. Unless you have a pipeline behind the current products its just a matter of time before patents expire and you're facing the same problems.

Plus acquistion comes with costs. Financial. logistical, cultural, and personnel costs. Its not an easy thing to successfully combine 2 ccmpanies. It can be down right risky if they are weak companies to begin with.

 

Apple has made plenty of acquisitions. If Apple were to buy a flat panel display company, and thereby retain the profits it pays for the outsourced supply, investors may well greet it as positive news. Certainly not a "risk." It would be a giant becoming more dominant. The US government would have to approve the because it may be anti-competitive.

It's a risk because of AZ's history: Medimmune. They paid too much for too little. Acquisition savvy is not one of AZ's core competencies. Come to think of it, what are AZ's core competencies? Ha ha.

 

Lawyers.

 

Thge only cometency of the US business has been sales.

That has been used to manage contribution th e last few years, and also to grow resumes for the annointed.

Consequently the leadership has gone out the door and the company is following.

Marketing and drug development are among the worst in the industry.

If they ever get a product to market, the marketing department tend to deliver a message that doesn't resonante, or leads to horrendous fines.

 

I am invested in this company. It is time for slashing costs and then a reorg of management in 2012 to get back on the right track.

 

As a percentage of your wealth, you are likely more invested in the company than senior management is. They changed from options to grants for their lavish bonuses, and they sell their granted stock right away. Used to be that if the company did well, they did well (it's called an "incentive.") Now, with outright grants-immediately-converted-to-cash, it's just more slop at the sty.

 

Organic growth is no longer a viable option for this company. The deep cuts and reorganizations in R&D have already removed that possibility. A pipeline needs quality drug projects at various stages of progress. They cut the early stages because the timeline for delivery was too far out for their financial plans. That left them with only late stage projects that could not be replaced if they failed. It was always true in the pharma business that the majority of projects would fail, but a robust pipeline kept delivering new ones until a great product was found. Once found, such a product would continue to drive revenues for over a decade. They decided that they could "manage the risk" and cut the early stages and only keep the winners. Unfortunately, no one is smart enough to make those choices intelligently because most drug projects fail for completely unforeseen reasons. It is a complicated business. Organic growth is no longer possible here. Licensed projects are often either of dubious quality or so costly they aren't profitable in the end. This leaves only the "strategic options" they allude to in the article. Any guesses on who the dance partners might be?

 

Thanks for posting. Science and sales was supposed to save us. THe Obama environment has gutted this Industry and AZ is one of the biggest casualties. AZ must accept the blame of courting US-inspired socialism and AZ's demise was also due to poor support of science and overhiring of sales with sales metrics from bullsh%t firm IMS. Marketing after Nexium was too painful to watch. Marketing was seen as a developmental role to put these people in future leadership positions. Now you have a view of how this flushed down the loo.

 

Wrong, lack of new drug discovery has killed this industry. And don't forgot either that Medicare Part D was George Bush's legacy. Wasn't he a true conservative? Then why the giveaway to seniors?

 

You're wrong about the Obama enviornment gutting this industry. That is yet to happen, but will be happening soon. And you thought things couldn't get much worse.

The major factor in the demise of the US pharmaceutical industry has been the loss of patents on the blockbuster drugs that came to market in the 80's, 90's and early this century, and the failure of pipelines to replace them.

Add to that questionable business practices, leading to OIG investigations and CIA's and fear mongering legal departments, marketing by scripted message and there is plenty of fault to find.

But an even larger factor has been the "share of voice" arms race which resulted in going from one rep per territory to 2, 3, and more, calling on the same doctors with the same products. This could be supported when profits were rolling in, but we are seeing what happens when profits start to fall off.

The greatly increased number of reps trying to get into offices is what has led to the access problems we live with today, and now AZ gives restricted access as one of their justifications for sales force cut backs.

 

if we get on the dance floor in our sorry state, we'll be acquired, used as a synergy for some other fat pharma with a poor pipeline, and that will be the end of us

 

Acquired, hardly! Why would anyone buy them? For what? Science and Pipeline? No! It was slashed in a death by a thousand cuts over the recent years. Crack sales team? Nope! Reduced to a demoralized rubble now. Marketing? They already have their own TV ads. Product launching, please!
No, AZ will have to buy a more successful company, at great expense, for their products and pipeline if they are to survive for a while. That is the share price risk alluded to by the DB analysts.

 

Ex-actly. Any anyone AZ buys will be taken under. AZ doesn't do takeovers.

 

If the company share price gets cut in half next year, I wonder if anyone in leadership will be held accountable. Like fired without severance, like they've done to plenty of long term reps.

 

Leadership will bail out with their golden parachutes, of course. Merged future company will be run by the purchased company's management. That's the model for large failing company purchasers in pharmaceuticals of smaller but more successful companies, at least for the ones that sort of work out. See the Glaxo purchase of SKB for how it will generally go.

 

Do these fall into the dubious category?

Diabetes drugs are interesting but they have potential blood pressure and pancreatic cancer liabilities.

The cancer drug also has potential, as that target does seem important in metastasis and angiogenesis but lots of others are working on this one too.

Both are in early development before efficacy demonstrated and safety only partially shown.

Still very high risk to ever deliver, but that is the nature of pharmaceuticals.




AstraZeneca places two new bets after R&D setbacks

Wed Dec 21, 2011 3:12am EST


* Pays $20 mln upfront for rights to Chi-Med cancer drug

* Signs option on new type of diabetes pill from Astellas

* Follows double dose of bad news on AZ pipeline on Tuesday

By Ben Hirschler

LONDON, Dec 21 (Reuters) - AstraZeneca is placing new bets on drug research by signing deals with two Asian companies, just one day after suffering a double setback for two of its most important pipeline assets.

Britain's second biggest drugmaker said on Wednesday it had struck a global deal to co-develop a novel cancer treatment from Hutchison China MediTech and bought options on a potential new class of diabetes pills from Astellas Pharma .

The deals go some way to bolster AstraZeneca's pipeline of experimental medicines in two priority areas for the company, although the products are still at an early -- and risky -- phase of development.

Their addition to the portfolio will do little to offset investor concerns about AstraZeneca's increasingly fragile pipeline of new drugs, which was further damaged on Tuesday by high-profile setbacks in cancer and depression.

AstraZeneca is taking $381.5 million in charges -- pushing 2011 profits to the lower end of its forecast range -- after dropping olaparib for ovarian cancer and announcing a second unsuccessful late-stage test for new antidepressant TC-5214.

It can ill-afford such failures, since it has few other products in late-stage development, with the exception of a new pill for rheumatoid arthritis, as it faces looming patent losses on blockbusters like Seroquel for schizophrenia and Nexium for heartburn and ulcers.

Its top-selling cholesterol fighter Crestor also has a tough time ahead, due to the arrival of cheap generic copies of Pfizer's market-leading drug Lipitor in the key U.S. market last month.

AstraZeneca will pay Chi-Med $20 million upfront for the global licensing, co-development and commercialisation agreement covering volitinib -- an inhibitor of the c-Met receptor tyrosine kinase that is about to enter initial Phase I clinical tests.

Hong Kong-based Chi-Med will get up to $120 million if the cancer drug is developed successfully, plus possible "significant" future commercial sale milestones and up to double-digit percentage royalties on net sales.

The deal with Japan's Astellas involves AstraZeneca paying an unspecified upfront fee for options to acquire PSN821 and PSN842 from Astellas -- two experimental treatments for type 2 diabetes that are in mid-stage Phase II clinical trials and preclinical development respectively.

Both the Astellas products belong to a class of compound known as G protein-coupled receptor GPR119 agonists.

 

None of these drugs will get to sales in time to help before the cliff. At least there still might be something in the pipeline then anyway.