Is AstraZeneca Gearing Up for a Shopping Spree?

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AstraZeneca's (NYSE: AZN  ) in a tight spot. The big pharma's sales and earnings have swung sharply lower recently, with patent expirations and generic competition slamming the company's revenue. AstraZeneca's pipeline isn't much to brag about, either. The future looks murky at best for this pharmaceutical icon, with CEO Pascal Soriot predicting revenue to fall in the mid- to upper-single digits for the year.

This company won't go down without a fight, however, and acquisitions could be the spark that saves AstraZeneca from danger. Reports emerged this week that the company is among the interested suitors submitting first-round bids for small antibiotic developer Optimer Pharmaceuticals (UNKNOWN: OPTR.DL  ) . Is this the right move for AstraZeneca -- and could this be the start of a buying spree to save this firm's future?

Bidding on the wrong buy
AstraZeneca is just one of a few companies competing for Optimer, which has just one drug on the market, Clostridium difficile infection-treating antibiotic Dificid. Cubist Pharmaceuticals (UNKNOWN: CBST.DL  ) is also vying for the acquisition, bolstered as Cubist already maintains a partnership with Optimer over the marketing of Dificid. Japanese pharmaceutical firm Astellas Pharma is also in the running for Optimer. GlaxoSmithKline (NYSE: GSK  ) , which is also in the acquisition hunt after seeing its operating profit fall 26% in the most recent quarter, has reportedly backed out of the competition after expressing interest early.

Optimer's hardly the big splash AstraZeneca investors were hoping for. The company has a market cap of just less than $700 million and recorded less than $20 million in revenue in the most recent quarter. The company's pipeline includes two other indications for Dificid in mid- to late-stage clinical trials, but Optimer won't deliver the kind of revenue-bolstering punch AstraZeneca desperately needs.

Analysts expect around $150 million in sales for Dificid next year, and fellow Fool Sean Williams doesn't see the drug likely eclipsing the $225 million annual sales mark. With that kind of poor prognosis for Dificid, AstraZeneca doesn't need to spend hundreds of millions of dollars (or more) on a company with little upside, particularly as its finances continue to struggle from falling sales.

In need of a big buy
AstraZeneca's losses are stacking up for the near future. Full-year revenue fell 17% last year, and Credit Suisse noted earlier this year that the company needs $6 billion in annual sales by 2016 to record 2% sales growth by that year. That's hardly a plausible goal with the firm's barren pipeline and won't be supported by adding Dificid's uninspiring sales projections.

To its credit, AstraZeneca has been pushing to cement partnerships with other drugmakers recently. The firm paid $240 million to Moderna Therapeutics in March for a new developmental messenger RNA technology that could open up a number of drugs for AstraZeneca's development. It's also recently agreed to developmental drug partnerships with Boston's Bind Therapeutics and Australian biotech firm Alchemia.

This isn't enough to save AstraZeneca's future, however. While the developmental buys could help AstraZeneca's pipeline over the long term if they pan out, the company hasn't done much to solve its problems in the near future. AstraZeneca's goal is to double its late-stage developmental drugs by 2016, a goal it's far away from achieving now.

AstraZeneca and Shire Pharmaceuticals (NASDAQ: SHPG  ) were the subject of takeover talk earlier in the year, and Shire is a company that AstraZeneca should pursue more aggressively. Although Shire recently cut its sales forecast for the full year, the company still expects revenue to grow at a modest clip this year -- a feat that AstraZeneca can't boast. With more than $4 billion in annual sales, Shire would immediately firm up AstraZeneca's revenue hole in a big way, and the company's experience with gastrointestinal drugs would fit in well with AstraZeneca's own portfolio.

Shire would be a hefty purchase for AstraZeneca with a market cap of more than $17 billion, but AstraZeneca can't keep pursuing small-time deals like Optimer. These kinds of acquisitions won't help its financial decline in much of a meaningful way. AstraZeneca's leadership has shown that it's ready to pull the trigger on more purchases, but unless this company's willing to make a bold, big move, it will continue to struggle. For now, stay away from this flailing big pharma.

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9/28/2016 4:02 PM
AZN $33.82 Up +0.21 +0.62%
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CBST.DL $0.00 Down +0.00 +0.00%
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OPTR.DL $0.00 Down +0.00 +0.00%
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SHPG $199.57 Down -0.65 -0.32%
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