AstraZeneca Plc surged to the highest level in more than three years in London trading after a U.S. court upheld a patent on the Crestor cholesterol pill, removing a threat to the blockbuster’s $4.5 billion in sales.
AstraZeneca’s stock gained 7.5 percent today after U.S. District Judge Joseph J. Farnan Jr. ruled yesterday that a patent on the active ingredient in Crestor is valid and enforceable until 2016. AstraZeneca’s partner Shionogi & Co. rose 7.2 percent in Tokyo trading.
The victory may clear the way for London-based AstraZeneca to increase share repurchases or pay a special dividend with its $9.4 billion in cash and short-term investments, said Gareth Powell, who helps manage $200 million in health-care funds at Polar Capital. The company may announce next month when it releases earnings that it’s increasing stock repurchases to as much as $4 billion annually from about $1 billion now that it has won the case, JPMorgan Chase & Co.’s Alexandra Hauber wrote in a note to clients today.
“If it had gone the wrong way, it would have been an absolute nightmare,” Powell said in an interview in London. “The implications now are, what will they do with all the cash?” Powell, who doesn’t own AstraZeneca shares, said he will assess his position after “the stock settles down.”
AstraZeneca rose 222 pence, or 7.5 percent, to 3,169 pence, the highest price since Nov. 7, 2006. It was the biggest advance since Nov. 24, 2008.
The company still faces cheaper copies of six drugs by 2014, including its two biggest sellers: Nexium for ulcers and the Seroquel antipsychotic. Chief Executive Officer David Brennan has said that the threats may result in “fluctuating earnings” until 2014 and that investors should instead focus on his efforts to return cash to them.
AstraZeneca repurchased more than $4.7 billion of shares in 2007 and 2008, yet halted buybacks in the third quarter of 2008 to conserve cash during the financial crisis. The company resumed buybacks this year and plans to spend as much as $1 billion.
“With the Crestor overhang and risk of significant downside removed, investment focus should shift to the potential upside from a buyback program,” Hauber wrote. A $4 billion annual buyback would push earnings per share up by 20 percent by 2014, she wrote. The company may signal an increased repurchasing plan when it announces earnings on July 29, wrote Hauber, who raised AstraZeneca shares to “neutral” from “underweight.”
“We wouldn’t say anything prior to our half-year results” about buyback or dividend plans, AstraZeneca spokesman Chris Sampson said in an interview. “People will just have to wait.”
Shionogi climbed 124 yen, or 7.2 percent, to close at 1,843 yen on the Tokyo Stock Exchange, the most since Nov. 10, 2008. Crestor brought $565 million in royalty revenue to Shionogi in the year ended March 31, or 18 percent of sales. The dispute had been capping Shionogi shares, which have fallen 8.3 percent this year, said Mayo Mita, an analyst at Morgan Stanley in Tokyo.
Shionogi shares may reach 2,200 yen in the next 12 months, said Fumiyoshi Sakai, an analyst at Credit Suisse Group AG, in a note to clients.
The judge in Wilmington, Delaware, rejected challenges by companies including Teva Pharmaceutical Industries Ltd. that sought to market copies of the medicine.
AstraZeneca also faces a review by a U.S. Food and Drug Administration advisory panel on July 28 of its experimental anti-clotting treatment Brilinta that “may cause further volatility,” Hauber wrote.
“Brilinta is very important to think about now as the next key binary event,” Powell said. “It really is the key thing for investors now. It’s much more important longer-term.”