Nov. 1 (Bloomberg) -- AstraZeneca Plc, the U.K.'s second- largest drugmaker, said third-quarter profit declined 15 percent as top-selling Nexium ulcer treatment and the Crestor cholesterol pill faced increasing competition from generic treatments.

AstraZeneca dropped 1.8 percent in London trading after net income fell to $1.34 billion and a generic-drug maker challenged the patent for Crestor, its third-biggest product last year.

Sales rose at the slowest rate in five quarters as generic medicines won market share. Chief Executive Officer David Brennan has bought several biotechnology companies, including MedImmune Inc., since taking over in 2006. The London-based company needs Nexium, Crestor and other older drugs to fuel growth until new products reach the market. The Seroquel antipsychotic surpassed $1 billion for the first time in the quarter.

``The operating performance of all five key brands was pretty strong, particularly Seroquel,'' said Jeremy Batstone-Carr, a London-based analyst at Charles Stanley. ``The problem AstraZeneca faces is that it has insufficient drugs in the pipeline to overcome patent losses.''

The shares fell 43 pence to close at 2,330 pence. The stock has lost about 15 percent of its value this year, making it the second-worst performer of the 13 companies in the Bloomberg Europe Pharmaceutical Index.

Net income declined to 90 cents a share, from $1.59 billion, or $1.01, a year earlier, the London-based company said today in a statement. The net income beat the median estimate of $1.3 billion of nine analysts surveyed by Bloomberg. Sales rose 9.7 percent to $7.15 billion, also beating estimates.

Acquisitions

AstraZeneca is integrating two acquisitions, Cambridge Antibody Technology Plc and MedImmune, after suffering late-stage trial failures of four experimental medicines in the last two years. MedImmune reduced earnings in the quarter by $212 million, AstraZeneca said. The biotechnology company's business is seasonal and expects a loss for two quarters every year, interim Chief Financial Officer Paul Kenyon said in the conference call.

``They've got short-term growth but the pipeline is uncertain,'' Michael Leacock, an ABN Amro analyst in London, said in a telephone interview on Oct. 26. ``The rest is all going to be what's going on with the integration.''

Outlook

AstraZeneca confirmed its 2007 earnings target of $3.60 to $3.75 a share, excluding sales of Toprol XL and restructuring costs. Restructuring costs for the year will be about $900 million, or 44 cents a share, Brennan said.

The drugmaker plans to become a ``major force in biologics,'' which will account for 25 percent of products in the last stage of testing by 2010, Brennan said in a conference call with journalists. The company may have as many as 5 products to introduce in 2010 to 2011, the CEO said.

The company has 10 experimental drugs in late-stage trials and has made strengthening its product offerings a priority, Brennan said. He said AstraZeneca isn't looking for purchases as big as MedImmune, which cost $15.2 billion earlier this year.

Seroquel sales rose 24 percent to $1.06 billion in the quarter as pharmacies stocked up on a new extended release version introduced in August.

Nexium prescriptions rose 1 percent to $1.29 billion. Sales of Crestor grew 29 percent to $691 million, while sales of the Symbicort asthma inhaler rose 34 percent to $371 million after the product was introduced in the U.S. in June, AstraZeneca said.

Generic Challenges

Toprol XL continued to lose sales to generic copies, the drugmaker said. The medicine brought in $328 million, compared with $473 million a year earlier. The drug generated $1.8 billion in 2006, making it the company's fourth best-selling product last year.

Cobalt Pharmaceuticals Inc., based in Mississauga, Ontario, asked U.S. regulators to approve a copy of Crestor, AstraZeneca said earlier today. Cobalt is applying for four different doses of the medicine before the expiration of two patents.

The U.K. company has 45 days to file a patent-infringement lawsuit that would stop the U.S. Food and Drug Administration from approving the application for 30 months. Cobalt claims that its versions won't infringe on patents that expire in 2016 and in 2020, AstraZeneca said.

The challenge by Cobalt is a fundamental challenge against Crestor's substance and AstraZeneca plans to ``vigorously defend'' the patent, Brennan said.

Crestor, which helps reduce the artery-clogging form of cholesterol in the blood, was AstraZeneca's third-best selling product last year, bringing in $2.03 billion. The global market for cholesterol treatments, the biggest-selling category of drugs, totals about $21.6 billion a year, according to Norwalk, Connecticut-based consulting firm IMS Health Inc.

Shrinking Market

The market for brand-name cholesterol-lowering drugs will shrink now that a generic form of Merck & Co.'s Zocor has put pressure on Crestor, Pfizer Inc.'s Lipitor and Schering-Plough Corp.'s Vytorin, Brennan said.

Researchers are scheduled to release new data on Crestor's use in heart failure at the American Heart Association meeting in Orlando, Florida, on Nov. 5.

The company said it got a special order last month from the U.S. Federal Trade Commission asking for information dealing with the agency's industry-wide study of the short and long-term competitive effects of so-called authorized generics. AstraZeneca is collecting the information and will respond.

The FTC and the Democratic-controlled Congress may try to override two federal appeals court rulings in 2005 that allowed AstraZeneca and Schering to pay competitors to keep cheaper generic alternatives off the market.

Opponents of the payments argue that brand-name companies benefit from exclusive rights to sell patented medications while the generic manufacturers get a handsome settlement to keep cheaper drugs off the market. The American public is the only loser, they say.

To contact the reporter on this story: Andrea Gerlin in London at agerlin@bloomberg.net

Last Updated: November 1, 2007 13:17 EDT