If AstraZeneca (NYSE:AZN) decides to join Big Pharma peers in the merger and acquisition parade, will it buy something out of strength or out of urgency?

Just like Pfizer (NYSE:PFE) and Merck (NYSE:MRK), which are buying their way into more products and a presumption of greater pipeline productivity through huge acquisitions, AstraZeneca is also looking at major product patent expirations in the next few years. So far, CEO David Brennan says he's not interested in a mega-merger, preferring smaller acquisitions, licensing agreements, and partnerships. Of course, the CEOs of Pfizer and Merck didn't exactly use a bullhorn to announce their grand intentions.

Like its fellow Pharma giants, AstraZeneca faces uncertainty over whether its pipeline -- either homegrown or through collaborations -- can match or exceed the revenue that generic competition will likely take away. Too many patent expirations and too few future blockbusters are common problems for most major drugmakers, but AstraZeneca has several upcoming issues that could put Brennan on the spot and investors in a quandary.

Leaping off the patent cliff
AstraZeneca knows that some drugs will face generic attack in the next few years, but it also is battling legal challenges to many major molecules -- including the cholesterol fighter Crestor, the heartburn treatment Nexium, and the antipsychotic Seroquel -- now on the market. Last year, those three drugs accounted for 42% of AstraZeneca's $31.6 billion in revenue, and a whopping 57% of the company's U.S. revenue of $7.7 billion.

The last thing that AstraZeneca and its investors need is for prominent products to go off patent sooner than had been expected.

Even though AstraZeneca doesn't have the lopsided reliance on a single drug like some do, it still faces a dramatic "patent cliff" -- the expected sales slide caused by patent expirations. A recent study by Zacks Investment Research predicts AstraZeneca will lose $11.1 billion in patented-protected revenue by the end of 2012. That figure -- which includes five drugs with more than $1 billion in annual sales -- represents 39% of estimated 2009 revenue.

Only Pfizer, excluding its planned purchase of Wyeth, and Forest Laboratories (NYSE:FRX) are in worse patent-expiration shape, with Zacks predicting 40% and 73% losses, respectively, in projected 2012 revenue. Zacks says companies best protected against the patent cliff include Abbott Laboratories (NYSE:ABT) and GlaxoSmithKline (NYSE:GSK), whose expected revenue losses via patent expirations represent zero and 4%, respectively, of projected 2012 revenue.

Prompt pipeline productivity?
Excluding line-extensions of existing drugs, AstraZeneca could receive Food and Drug Administration verdicts on six new experimental products within the next 18 months for treatments ranging from diabetes to blood clots to lung cancer. From the second half of 2010 to 2011, AstraZeneca expects to seek FDA approval for four other experimental products.

The experimental drugs need both rapid regulatory approval and relatively few restrictions to improve their competitive profiles. However, several products have run into regulatory delays. One is the diabetes treatment Onglyza, whose original review deadline was April 30. FDA hasn't yet approved it, even after an FDA advisory panel recommended approval of the drug by a 10-2 vote near the end of March. The panel said AstraZeneca and its partner Bristol-Myers Squibb (NYSE:BMY) must conduct post-marketing clinical trials to make sure the drug doesn't cause heart problems.

Another delay involves motavizumab, a treatment for respiratory synctial virus, a common cause of pneumonia and other lung disease in children under 12 months old. This is the follow-up to Synagis, which produced $1.2 billion in sales last year. In November, FDA asked for more information, but the company says it doesn't expect it will require more clinical trials. AstraZeneca sought FDA approval in early 2008, and it plans to refile its application this year.

Near-term challenges
The next 18 to 36 months will be crucial for AstraZeneca's scientists, regulatory specialists, and patent lawyers. A series of timely regulatory approvals plus defeats of patent challenges will validate Brennan's strategy. However, a worst-case scenario -- regulatory delays, more clinical trials, strict labels on new drugs, victories by generic-drug companies -- could flatten and even reduce revenue growth for the next few years.

So far, AstraZeneca has avoided the strategic decisions favored by Pfizer and Merck. It hasn't made a mega-deal to add many prescription drugs or new business such as over-the-counter medications and consumer products. And, unlike some Big Pharma companies, it isn't pursuing the generic-drug business.

By far, the biggest deal on CEO Brennan's watch has been the $15.6 billion purchase of MedImmune in 2007, a number that is modest only in comparison to Pfizer+Wyeth and Merck+Schering-Plough.

Brennan's next biggest deal will be how much investors share his faith in his current strategy.

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Fool contributor Robert Steyer doesn't invest in any companies cited in this article. Pfizer is an Inside Value recommendation. The Fool has a disclosure policy.