AstraZeneca Plc: Big Pharma Checkup for 2014

A high profile patent loss for AstraZeneca's (AZN) Nexium this year creates big challenges for the company.

Jan 18, 2014 at 11:00AM

Investors should always take a long-term approach when it comes to building a portfolio, and that's exactly what investors will need to do when looking at AstraZeneca (NYSE:AZN). Stiff patent expiration headwinds mean the company won't see revenue return back to 2013 levels until 2017.

But strategic moves, including acquisitions, collaborations, and cost cutting, may make AstraZeneca worthy of consideration given the company may enter 2017 far more profitable than it is today.

Blunting expiration blows
It's hard for one deal to dramatically reshape a big company like AstraZeneca, but that may be what happened when the company bought the half of its diabetes joint venture it didn't own from Bristol-Myers Squibb (NYSE:BMY) in December.

Bristol's share of the diabetes partnership didn't come cheap. AstraZeneca handed over $2.7 billion up front and promised another $1.4 billion if the business hits certain future targets. 

However, that $4.1 billion promise gave Astra the share of a handful of top selling diabetes medications that could significantly impact revenue as the global population of diabetes patients grows.

Included among those medications is Onglyza, approved in 2009,  and Farxiga, which was approved by the FDA earlier this month and is already sold overseas as Forxiga. The acquisition also brings along complete control over Byetta and Bydureon, two drugs acquired in Bristol and Astra's $7 billion acquisition of Amylin Pharmaceuticals in 2012.

All combined, the joint venture generated $1.2 billion in sales for Bristol in the first nine months of 2013. The addition of those sales to Astra's revenue this year helps calm fears over lost revenue from the pending patent expiration for its $4 billion a year blockbuster drug Nexium. A bit more than $2 billion of Nexium's sales come from the U.S., where the drug will face generic competition beginning in May.

Further out, AstraZeneca hopes growth from the diabetes platform will also help protect it as it loses protection for another blockbuster, Crestor, in 2016. Crestor had sales of more than $6 billion last year.

Tightening purse strings
AstraZeneca is admittedly top heavy. The company's operating margin is above 40% and that's well above Bristol's 31% rate. It's also much higher than Merck (NYSE:MRK), a company that competes against AstraZeneca with its highly successful diabetes drug Januvia. Januvia had sales of nearly $2.9 billion in the first nine months of 2013, making it Merck's best selling drug.

AZN SG&A to Revenue (TTM) Chart

AZN SG&A to Revenue (TTM) data by YCharts

Recognizing the disparity in costs versus its peers, AstraZeneca plans to tighten the lid on expenses. A restructuring that includes consolidating R&D and cutting more than 2,000 jobs has the company targeting SG&A of roughly 30% of sales.

Bringing products to market
Across indications including oncology, diabetes and respiratory diseases, Astra has 11 ongoing Phase 3 programs, roughly double its levels from last year. It also has 27 phase 2 programs under way. . That should provide a solid runway of new drug candidates, given 50% of late stage drugs tend to make it to market.

One of the more intriguing drugs in that pipeline is olaparib, a drug being studied as a treatment for ovarian and gastric cancer. After failing a phase 2 study in 2012, olaparib has been repurposed to target patients with a specific gene mutation. The company expects to file for olaparib's approval for ovarian cancer this quarter.

Astra also has cancer compound selumetinib in phase 3 for patients with advanced or metastatic non-small cell lung cancer. The company hopes to be able to file that compound for FDA approval by 2017.

Another potential money-maker for Astra is brodalumab, which is being co-developed with Amgen (NASDAQ:AMGN). Astra paid Amgen $50 million up front for the opportunity to work on brodalumab and four other monoclonal antibodies in Amgen's inflammatory pipeline in 2012.

Brodalumab is in phase 3 trials for psoriasis, a multibillion market given it affects 125 million people worldwide. The indication has been a major source of revenue for Amgen's blockbuster drug Enbrel, which generated sales north of $1 billion for the company in the third quarter. Astra estimates it will file for approval of brodalumab in 2015.

Fool-worthy final thoughts
In a bid to actively rebuild its pipeline, Astra is acquiring or partnering with emerging biotechnology companies. In the past year, Astra has acquired Pearl Therapeutics and fish oil specialist Omthera Pharmaceuticals.

It's also working on antibody-drug conjugates, a promising approach for targeting cancer cells without damaging healthy cells; it's working with Spirogen and ADC Therapeutics to develop potential candidates.

But there's a tremendous amount of work to do to make up the ground that will be lost from Nexium and Crestor over the next few years. And plenty of competition is making its way through diabetes trials, including MK-3102 from rival Merck. That suggests investors may want to pay particular attention when Astra outlines its strategy more in its full year review of results in early February.

1 more company worth watching this year

There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Todd Campbell has no position in any stocks mentioned.  Todd owns E.B. Capital Markets, LLC.  E.B. Capital's clients may or may not have positions in the companies mentioned.  Todd also owns Gundalow Advisor's, LLC.  Gundalow's clients do not have positions in the companies mentioned.  The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers