By : The Telegraph
Source : http://www.telegraph.co.uk
category : Patent News
He is likely to face painful questions about the drug maker’s prognosis, as some of its best-selling drugs encounter generic rivals and its cabinet of new medicines remains paltry.
Such questions are not new, but with the “patent cliff” fast approaching, some investors are apparently fractious and analysts are wondering just what is the remedy for Astra’s ills.
Ten years ago, Britain’s second-biggest drug maker was the top-rated stock in European pharmaceuticals, with future blockbusters such as cholesterol-fighter, Crestor, coming through the pipeline. But a decade and a string of drug failures later, its valuation is one of the lowest in the sector.
The latest disappointment came in March, when the Anglo-Swedish drug maker pulled the plug on a potential anti-depressant it was developing with America’s Targacept.
That failure will cost Astra $50m (£31m) and follows setbacks with new medicines for ovarian cancer and diabetes. However, the diabetes pill did get a fillip on Friday when European regulators backed its approval. But research stumbles leave Astra’s stock of future medicines running low at a time when the company is hitting the patent cliff, where patents protecting a drug expire, allowing generic companies to make cheaper versions of the same medicine.
Astra’s patent cliff is particularly steep. Breast cancer drug, Arimidex, has already lost patent protection and sales halved last year. This year’s pain from the loss of Seroquel’s American patent could be severe, with the antipsychotic medicine currently raking in annual sales of almost £1bn.
There is more to come. Nexium for acid reflux will face American generics in 2014 and Crestor, Astra’s biggest-selling drug, loses patent protection in 2016. Crestor is already facing a challenge as cheaper versions of Pfizer’s rival drug, Lipitor, enter the market after its patent expired in November. More sanguine observers, however, argue that Crestor will be protected by its position as a treatment for higher-risk patients.
Elsewhere in Astra’s cabinet of heart medicines, some analysts are concerned that sales of its new blood-thinning drug, Brilinta, are not ramping up quickly enough. Such challenges put the business under pressure as it battles to rejuvenate its pipeline.
Analysts argue that it is difficult to pinpoint why Astra’s research efforts have not borne much fruit. Jack Scannell, an analyst at Bernstein, said: “Everyone knows that research and development (R&D) is difficult and unexpected things happen; even the companies that win don’t win very often.”
His colleague, Tim Anderson, added that once a company has struggled with R&D, it is difficult to escape that mindset. “Astra has a mixed track record over many years and I wouldn’t say it’s necessarily because they went down a different path,” he said. “I just don’t think they were aggressive enough in their investment and probably didn’t value trying to be cutting edge.”
But Astra has taken action to address the paucity of its pipeline. Two years ago, the business revealed a new strategy aimed at revitalising its discovery efforts and slashing costs. It outlined moves to cut jobs and reduce the number of diseases it researches, pulling out of areas such as schizophrenia. Alongside that, it is returning billions to shareholders through buy-backs.
Astra has also created a series of “innovative medicines units” – or iMeds – that source the most promising science inside and outside their walls.
Partnering, or in-licensing, is not new – Crestor was the product of a partnership with Shionogi – but Astra is redoubling its efforts in the field. Earlier this month, it signed a deal with America’s Amgen to jointly develop and sell five biotech drugs. Astra has also created a neuroscience “virtual” iMed comprising a small hub of scientists who will work with industry and academia to develop drugs.
Shaun Grady heads up strategic partnering and business development at Astra. He said: “We partner, in-licence and acquire because we firmly believe that we don’t have all the answers internally in our labs, we don’t necessarily have the best science in our labs, so we’re absolutely committed to this balance between what we originate and develop internally and projects and programmes that come from outside the company.”
“This isn’t a short-term fix to plug gaps in our present pipeline, this is how we’re going to generate products for patients going forward,” Grady stressed.
Astra gets 40pc of its pipeline from external collaborations and its late-stage pipeline comprises assets licensed in over the last three years, like an arthritis drug from Rigel.
While the company is interested in sourcing science from academia, Grady added that the focus is on finding later-stage assets or products that are on the market but require another commercial partner. Over the next year, Astra is expected to ink more such deals and is keen to do “peer collaborations”, as well as pursue partnerships in emerging markets.
Although some shareholders are speculated to have been agitating for change, one investor stressed that they were supportive of Astra’s board and the direction it is taking. They believed that Astra was right to get smarter about research and be more ruthless with its pipeline.
Graham Taylor, a fund manager at Legal & General (L&G), which is a top-ten investor in Astra, added: “Expectations are so low that any pipeline success will come as a very positive surprise and would force investors to reappraise the company.”
But there are questions about whether Astra is going far enough to rejuvenate the business and release value.
Gbola Amusa, an analyst at UBS, suggested in a note this month that Astra could further shrink its R&D budget, estimating that a cut of 25pc would generate enough funds to make an acquisition worth $13bn. Alternatively, he suggested that Astra’s “dramatic” valuation means a potential suitor may emerge, with a buyer unlocking value by shutting the company’s research and development.
Further shrinking of R&D was also mooted by the Bernstein analysts. Last month, they published a note suggesting: “One area that could be axed – theoretically at least – is R&D.”
“Value-based investors would likely cheer this – assuming it would translate into higher dividends and share buy-backs – but it remains uncertain whether any big drug company will really put itself in a “run-off” mode,” they added. That remains mere hypothesis, with Astra itself remaining committed to its in-house science capabilities.
But in the absence of more radical action, some in the City believe Astra will get out its chequebook. The last large deal Astra struck was its $15.6bn purchase of MedImmune in 2007. Even though Brennan has stressed he would not do a deal as big as MedImmune, that has not stopped the City from speculating over a significant buy.
Liberum analysts recently suggested America’s Forest Labs as a possible target for a $10bn deal while Shire, the FTSE 100 maker of rare disease drugs, is often touted as a target. Bernstein suggested last month that hypothetically, it could make sense given that Shire would bring a combination of complementary research areas.
“Our belief is that the status quo is not sustainable,” said Bernstein analysts. They contemplated two different courses: further big spending cuts, or resorting to M&A. They concluded that the latter seemed more plausible, with Astra most likely to pursue deals of $10bn or less. That seems to be the course favoured by other drug makers. Glaxo last week made a $2.6bn tilt at Human Genome Sciences, with which it has developed a lupus drug, only to be rebuffed.
“Given its strong cash position, Astra could easily make a few mid-sized acquisitions,” added Mr Taylor of L&G. “Astra’s valuation is now so low that it’s hard to imagine that a sensible deal, contributing to earnings and growth, would not be welcomed by most investors.”
Caution over a mega-deal was echoed by Justin Smith, an analyst at Oriel Securities. “It would set the R&D organisation back by at least five years if not more,” he said, adding that buying a company like Shire would lack strategic rationale as its rare disease drugs are not scaleable.
Instead, he argues for maintaining the status quo, doing more deals like the one with Amgen, and for patience. He pointed out that even in the worst case scenario if the share price does stay flat for five years, the dividend-per-share is still going to grow with Astra remaining disciplined about how much it returns to shareholders.
While some investors appear to be agitating for a board shake-up, Smith argued that a change of chief executive would probably not make a difference. Brennan last week dismissed speculation that investors were growing restless with his captaincy, stressing it was business as usual. Astra added the board is focused on driving its strategy.
“If you change the chief executive, what’s the new chief executive going to do that the existing one isn’t doing already?” said Smith. “Most likely very little, because the existing chief executive is already aggressively restructuring and taking cost out of the company, returning a huge amount of money to shareholders and executing reasonably well on a clear five-year strategic plan.
Source : http://www.telegraph.co.uk/finance/newsbysector/pharmaceuticalsandchemicals/9218420/AstraZeneca-seeks-a-remedy-for-its-patent-pain.html
