BUY OR SELL-AstraZeneca: In sickness or in health?

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By Brenda Goh

LONDON, Nov 5 (BestGrowthStock) – AstraZeneca (AZN.L: ) shares have
had a rollercoaster ride this year as investors ponder the
drugmaker’s rising competition from cut-price generics.

While the Anglo-Swedish group is facing a raft of patent
expiries, investor optimism on the stock has been stoked by
cost-cutting, the success of cholesterol fighter Crestor, and
hopes for its new heart drug Brilinta.

Its stock hit the highest level in nearly four years in June
after a U.S. court upheld a patent for Crestor, AstraZeneca’s
biggest selling drug. It hit another peak in September from
which it has fallen 9 percent, having been knocked last week by
a 4 percent fall in third-quarter revenue hit by a 13 percent
drop in U.S. sales. [ID:nLDE69P0RT].

BEYOND THE PATENT CLIFF

“It is basically emerging markets and Japan, Brilinta and
cash deployment versus the patent cliff,” said UBS analyst Gbola
Amusa who has a “buy” on the stock with a 3,850 pence target.

Amusa said he was 90 percent sure Brilinta, seen as a
potential annual $2 billion-plus seller, will be approved. It
was recommended for approval in Europe in September and a U.S.
decision was due by Dec. 16.

“Also, much of the market assumes that once European and
U.S. patents go that all the drugs would genericise,” he said.

Citing AstraZeneca’s business in Japan, Amusa said: “(But)
the Japanese patent cliff is completely out of sync with the
U.S. and the EU and until analysts model the established rest of
the world, which is quite Japanese-influenced, they will not get
the whole picture”.

He said Symbicort’s potential was one example. The lung drug
was launched in Japan in January, although it has been sold in
Europe since 2000. “It is worth another $300 million in Japan.”

Amusa said the company generated “an unprecedented amount of
cash. There is around $35 billion of excess cash generation and
after paying dividends, through 2014, if deployed for share
buybacks this would increase consensus on EPS by about 20-30
percent.”

Panmure analyst Savvas Neophytou said AstraZeneca’s stock
remained cheap, with the recent share price fall a buying
opportunity, given the pipeline potential.

“As the bears fret over 2 percent downgrades to 2011
forecasts, we look towards 2014 where we expect 20 percent
upgrades to dwarf near-term concerns,” he said.

In January, AstraZeneca forecast annual revenues of $28-$34
billion from 2010-14, including $4-$6 billion revenue from new
drugs, pipeline products and licensing deals. [ID:nLDE60Q0K3]

Out of 39 analysts covering AstraZeneca, 16 have a “buy” or
“strong buy” on the stock and 11 have a “sell” or “strong sell”.

TOO MANY ISSUES TO FACE

Bears say the patent cliff facing AstraZeneca is simply too
steep for Brilinta and other new drugs to bridge the gap.

“My view is that it has got the biggest patent cliff out of
all the European pharamaceutical stocks,” said Evolution
Securities analyst Dominic Valder, who rates it a “sell”.

Matrix analyst Navid Malik also said patent expirations bode
ill for the company. “They are obviously cost-cutting to help
earnings but next year Pfizer’s (PFE.N: ) drug Lipitor is going
generic and this is going to have an impact on the market and
Crestor’s growth,” he said.

Sanofi-Aventis (SASY.PA: ) and Bristol-Myers Squibb’s (BMY.N: )
top-seller Plavix — which Brilinta will compete with — is also
going generic, he said.

Malik, who has a target price of 2,806 pence, said
AstraZeneca’s limited exposure in the biologics market meant it
may need to make an acquisition.

“There are lots of issues that they will have to deal with.
I think they are going to have to make a big acquisition to
transform themselves into a big biological player.

“There are a lot of challenges and investors have been
buoyed by the potential for Brilinta. But one drug cannot
support a company the size of AstraZeneca.”
(Editing by Dan Lalor)

BUY OR SELL-AstraZeneca: In sickness or in health?