AstraZeneca Gains on Buyout Speculation Even as Profit Falls

Apr 24, 2014 11:59 am ET

(Updates with closing share price in second paragraph.)

April 24 (Bloomberg) -- AstraZeneca Plc rose to a record in London trading even after reporting a slump in first-quarter profit amid speculation that the U.K. drugmaker may be a takeover target.

AstraZeneca climbed 3.3 percent to 4,175 pence at the close of trading in London, giving it a market value of 52.6 billion pounds ($88.4 billion). The stock advanced 10 percent this week after reports that New York-based Pfizer Inc. approached the company about acquiring it.

Investors may be reacting to the news about the progress of the company’s drugs, including new treatments for lung and ovarian cancer, that might make it a more appealing buyout candidate, said Fabian Wenner of Kepler Cheuvreux in Zurich. Chief Executive Officer Pascal Soriot said AstraZeneca is making progress independently by developing new medicines, and said he didn’t necessarily think big mergers are a bad idea.

“From the earnings quality, the stock shouldn’t be up,” said Wenner, who recommends selling the company’s shares. “The press release and the focus on the pipeline news could mean that it makes it more attractive to Pfizer.”

First-quarter profit excluding certain items fell 16 percent to $1.95 billion, or $1.17 a share, from $2.32 billion, or $1.41 a share, the London-based company said today in a statement. Analysts expected $1.21 a share, based on the average of 14 estimates compiled by Bloomberg.

Pfizer Talks

AstraZeneca took part in informal talks over selling the company to Pfizer, two people familiar with the matter said this week, asking not to be identified. One said the talks happened several months ago and there are no plans to resume. AstraZeneca won’t comment on the buyout speculation, Soriot said on a conference call with reporters. A Pfizer spokesman said the company doesn’t comment on speculation.

On a later call with analysts, Soriot was asked whether he agreed with some other pharmaceutical company CEOs that merging two big drug companies was too messy and didn’t create shareholder value. Soriot, who became Genentech’s CEO when Roche Holding AG bought the biotechnology company for $46.8 billion in 2009, said he couldn’t subscribe to that view.

“I’m a pragmatic person and I think it’s never really good to have a philosophy that applies to everything,” he said. “You’ve got to be practical and look at things case by case.”

Creative Solutions

AstraZeneca will look to make deals or find partners for drugs outside its three core areas of oncology; cardiovascular and metabolic diseases; and respiratory, inflammation and autoimmunity, he said. As a result, AstraZeneca is considering its options for a promising Alzheimer’s treatment it’s developing, he said.

“The data there looks very encouraging, very exciting,” Soriot said. “It’s one of the compounds we would possibly consider for a partnership. We cannot do everything ourselves and when we can’t do everything, we look for creative solutions.”

AstraZeneca is seeking to replace revenue lost to generics and the coming expiration of patents for its best-selling products. The drugmaker this year will start a late-stage study of MEDI-4736 for lung cancer, and said it plans to conduct advanced trials on another lung cancer therapy as well as two treatments for respiratory illnesses. Ovarian-cancer drug olaparib was accepted for priority review by U.S. regulators.

The company said it spent $1.2 billion on research and development in the quarter, an increase of 13 percent. AstraZeneca also said sales, general and administrative costs rose to $2.7 billion, compared with $2.5 billion a year earlier.

China Growth

Sales rose 3 percent at constant exchange rates to $6.42 billion. That compares with the $6.39 billion average estimate of 16 analysts compiled by Bloomberg. The company benefited from sales of diabetes medicines it acquired from Bristol-Myers Squibb Co. in December. U.S. revenue increased 3 percent, while sales in China, where U.K. competitor Glaxo is facing a bribery probe, advanced 22 percent to $584 million.

AstraZeneca is the second-largest multinational drugmaker in China by sales, with the highest growth rate, and is investing in manufacturing and research facilities there, Soriot said. The company may begin exporting drugs from China to Africa, he said.

“China will rapidly become one of our most critical areas,” he said.

Revenue from cholesterol-lowering drug Crestor, AstraZeneca’s best-seller, rose 2 percent to $1.33 billion, helped by an 8 percent increase in U.S. sales after rebate adjustments there.

For the year, AstraZeneca still expects sales to fall by a low- to mid-single-digit percentage at constant-exchange rates. The company said earnings will drop by a percentage in the teens. Analysts expect earnings this year of $4.33 a share, a decline of 14 percent from $5.05 last year, based on the average of 26 estimates compiled by Bloomberg.