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AstraZeneca: Time to Make a Bet? Steven Cohen Seems to Think It Is
Posted by: Damian Illia (IP Logged)
Date: January 15, 2014 02:43PM

AstraZeneca PLC (AZN) is a global prescription-based biopharmaceutical company with operations in the UK, continental Europe, the Americas, Asia, Africa and Australia. Its business focuses on the discovery and development of new products and its manufacturing, marketing and sale. AstraZeneca has managed to build its leading presence in the pharma and biotech industry thanks to patent-protected drugs and a constantly developing pipeline, both of which add up to a wide economic moat. In spite of this, its top and bottom-line have been and are expected to remain under pressure as non-generic and generic competition grows.

So far the company’s quarterly revenues have fallen 4 percent (at constant exchange rates). Additionally, U.S. health care reforms impacted in revenues and costs by $199 million. Now, on the face of massive patent losses on gastrointestinal drug Nexium in 2014 and cholesterol reducer Crestor in 2016, doubts are raised about the company’s growth prospects. The loss of these products’ exclusivity will impact strongly on margins and could cause an amplified shock on AstraZeneca’s bottom line. The question is, then, how will the company manage to fill those shoes?

AstraZeneca’s Plan

While AstraZeneca operates in multiple countries across the globe, it doesn't have the largest presence in emerging markets. Therefore, the company’s been making an effort to grow in these territories, especially in China. Emerging markets represent significant commercial opportunities and should help offset patent losses in developed markets. Revenues in emerging markets climbed 4 percent to 5.8 billion in 2012, and the company expects that revenues from emerging markets will cross $7.6 billion in 2018.

With its top line exposed to generic competition, AstraZeneca is looking towards cost-cutting initiatives to drive the bottom line. By reducing its cost structure, the company expects to lessen the impact of “genericization” of key products. Also, the company initiated a major overhaul of its research and development segment, which is expected to generate savings of $800 million per annum by the end of 2016 with 50 percent of this amount expected to be realized by the end of 2014. Streamlining of operations along with increased focus on R&D should benefit the company in the long run.

However, AstraZeneca’s strongest strategy seems to be in acquisitions and deals to boost growth and bolster its pipeline. Along with looking at suitable acquisitions and deals, the company has been targeting co-development to boost its pipeline as well. It has made agreements with Karolinska Intitutet (to conduct preclinical trials for candidates targeting cardiovascular and metabolic diseases), Moderna Therapeutics (to develop RNA therapeutics for the treatment of serious cardiovascular, metabolic and renal diseases), and others for ovarian cancer candidates and new generation anstisense oncology drugs.

Over its recent acquisitions, AlphaCore Pharma, Pearl Therapeutics and Ardea Biosciences Inc. can be found. However, it recently reached an agreement to end the diabetes joint venture that it had with Bristol-Myers Squibb (BMY), with Astrazeneca buying out Bristol-Myers’ as the company announced it will stop its research and development activity in diabetes, hepatitis C and neuroscience after a disappointing run with multiple drugs and rising FDA demands for new drugs.

Uncertainty Surrounds Astrazeneca?

Although this could be a potentially risky move for AstraZeneca due to competition from other companies that develop diabetes drugs, like Novo Nordisk (NVO) and Eli Lilly (LLY), through this deal AstraZeneca will get the approved drugs Onglyza (a DPP-4 inhibitor), Bydureon (a once-weekly GLP-1 analog), Symlin, and Forxiga (a SGLT2 inhibitor). While it may be said that this at-first-sight top-notch collection of assets has in fact very strong counterparts, the truth is that the exit of Bristol-Myers Squibb is likely to reduce competition in three drug segments and the revenue will begin growing to the acquirer.

Then, if potential headwinds are overcome — and they are likely to be  AstraZeneca is an interesting stock to invest in.

 

AstraZeneca PLC (AZN)

Industry Median

GlaxoSmithKline PLC (GSK)

P/E

16.8

26.50

20.70

Mkt. Cap.

78.71 B

-

128.26

ROE (%)

26.50

6.80

78.60

Trading at a discount in relation to its peers while having a relatively strong balance sheet, prominent investors like Steven Cohen, Charles Brandes (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) seem to think that this stock is worth betting on and have, thus, been adding it to their portfolios lately. Should you follow their steps?

 

Disclosure: Damian Illia holds no position in any stocks mentioned.




Guru Discussed: Charles Brandes: Current Portfolio, Stock Picks
Pioneer Investments: Current Portfolio, Stock Picks
Stocks Discussed: AZN, BMY, NVO, LLY, GSK,
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