For AstraZeneca, Cancer Drug Weighs on Go-It-Alone Stand -- WSJ
June 20 2017 - 3:02AM
Dow Jones News
By Denise Roland
LONDON -- AstraZeneca PLC Chief Executive Pascal Soriot made a
promise to investors three years ago as the Anglo-Swedish drug
maker was fending off takeover advances from Pfizer Inc.: If left
alone, AstraZeneca would nearly double its revenue within a
decade.
Three years into that commitment, Dr. Soriot still has a long
way to go to convince investors that walking away from Pfizer was
the right call. A series of drug-test successes have lifted
AstraZeneca shares this year, bringing them within range of
Pfizer's 2014 offer price. But AstraZeneca has hit some headwinds,
including unfavorable currency rates and disappointing results of
an attempt to widen the use of one of its new drugs.
Dr. Soriot faces his biggest test in coming weeks. Early results
for a new lung-cancer treatment could shore up investor confidence
in AstraZeneca's go-it-alone approach -- or sow fresh worry. The
drugs involved are part of a new breed of cancer medicine called
immunotherapies, which boost the immune system's ability to fight
tumors.
The trial, dubbed Mystic, "will be a critical transition point
for the company," said Jamie Freedman, who heads the company's
cancer division. "Very soon we're going to see how that plays
out."
The stakes in such trials are higher for AstraZeneca than most
of its Big Pharma peers: It never diversified into fields outside
the high risk-reward business of creating new drugs, which succeed
or fail after costly development and clinical trials with uncertain
outcomes. Drugs that become blockbusters eventually fizzle out when
they lose patent protection and face competition from low-cost
copycats.
Slower but steadier businesses -- over-the-counter medicines,
personal care products such as toothpaste -- have provided a
cushion for many of AstraZeneca's competitors. GlaxoSmithKline PLC
engineered a $20-billion deal with Novartis AG in 2015 that
expanded its vaccines and drugstore-staples businesses while
slimming down its prescription-drug arm.
When Dr. Soriot came aboard in 2012, AstraZeneca had a
near-empty new-drug pipeline and a series of patent expirations
that have pressured profit. Last year, annual earnings per share
came in at $2.77, down from $7.33 in 2011.
Instead of diversifying, Dr. Soriot doubled down on prescription
drugs. He prioritized the development of cancer immunotherapies in
particular, and embarked on a deal-making spree to stoke the
pipeline in oncology treatments and a handful of other disease
areas.
Earlier this year, Dr. Soriot backtracked a bit from the
long-term revenue forecast he made in the heat of the Pfizer
approach. Blaming currency fluctuation, he said sales should come
in at about $40 billion by 2023, about $5 billion below his earlier
promise.
Even so, revenue has fallen since that adjusted forecast. Dr.
Soriot has long said he expected 2017 to be the year when sales
bottomed out -- but the decline makes the road to his 10-year
target look even steeper.
In his 2014 presentation, Dr. Soriot said drugs for respiratory
diseases would generate $8 billion in 2023, compared with $4.75
billion generated in 2016. He said he expects AstraZeneca's
diabetes franchise to bring in $8 billion in 2023, versus $2.39
billion last year.
Dr. Soriot has tried to position AstraZeneca as an industry
leader in cancer treatment. AstraZeneca brought in $3.38 billion
last year in that field, compared with $11.5 billion that he
estimated such drugs could generate at their peak.
There have been some disappointments. The blood-thinning drug
Brilinta failed to show positive results in treating peripheral
artery disease, making it unlikely the drug would hit its $3.5
billion sales target by 2023, the company said.
A spokeswoman said AstraZeneca's internal revenue forecasts have
evolved to reflect clinical-trial successes and setbacks since
2014, and the contribution from each disease area is likely to
differ slightly from the forecasts Dr. Soriot laid out when fending
off Pfizer.
The company declined to disclose the forecast adjustments.
Executives have said they remain confident in delivering broadly on
10-year targets, and so far investors remain optimistic, too.
AstraZeneca shares are up 19% this year, trading just under
GBP53, or around $67.40, just under the premium-rich GBP55, or
roughly $70, share price Pfizer offered back in 2014.
Whether shares can top that offer price -- and vindicate Dr.
Soriot's decision to turn it down -- depends in the short term on
results of the Mystic trial, which is testing whether a combination
of two AstraZeneca immunotherapy drugs can prolong survival in
advanced lung cancer.
Analysts at Jefferies estimate success with Mystic would open
the door to an extra $5 billion in revenue at the drug's peak --
nearly half the $11.5 billion Dr. Soriot hopes AstraZeneca's cancer
franchise eventually will generate.
With its big investment in drug development, AstraZeneca "made
an overt attempt to reinvent themselves," said Jack Scannell, an
analyst at UBS. "Mystic is a critical readout on that route."
Write to Denise Roland at Denise.Roland@wsj.com
(END) Dow Jones Newswires
June 20, 2017 02:47 ET (06:47 GMT)
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