AstraZeneca Plc, the U.K.’s second- largest drugmaker, may double spending on share buybacks this year after a legal victory protecting the patent on the Crestor cholesterol pill freed up more cash, analysts said.
AstraZeneca is likely to announce a buyback of $1 billion when the company reports earnings on July 29, according to six of eight analysts surveyed by Bloomberg. The other two analysts do not expect any additional buyback. The drugmaker, based in London, is already planning a $1 billion buyback for 2010.
The company, one of the European drugmakers most exposed to potential generic competition, is returning some of its $9.4 billion in cash and short-term investments to investors as sales decline and earnings “fluctuate” until 2014, Chief Executive Officer David Brennan has said. In a victory for the company, a U.S. court last month upheld a patent on Crestor, removing a threat to the pill’s $4.5 billion in sales.
AstraZeneca’s decision to buy back “a mere $1 billion for 2010” may have been because “management wanted certainty about Crestor before committing to a sizeable buyback program,” JPMorgan analyst Alexandra Hauber said in a June 28 note.
The shares declined 49 pence, or 1.5 percent, to 3,174 pence as of 10:29 a.m. in London trading. The stock has gained 8.9 percent this year, helped by the Crestor victory, making it the top performer among the five biggest companies in the Bloomberg Europe Pharmaceutical Index.
A U.S. regulatory panel will next week decide whether to recommend approval of the Brilinta blood-thinner, a potential blockbuster.
“The stock becomes a great deal more attractive if Brilinta gets a thumbs-up,” Mark Clark, an analyst at Deutsche Bank AG in London, said in an interview. Clark, who rates the shares “hold,” estimates that the stock could gain 5 percent or decline as much as 10 percent on the advisory panel’s decision. The drug could generate as much as $2 billion in annual sales by 2015, Clark said.
AstraZeneca trades at about 8.7 times earnings, below the 12.6 times for the index, suggesting investors are betting the company will struggle to fight against the onslaught of generic competition until 2014. Dividends have increased for the last 14 consecutive semi-annual periods, according to Bloomberg data.
An FDA panel will on July 28 consider Brilinta for approval and recommend whether the product should be cleared as a competitor to Plavix, made by Sanofi-Aventis SA and Bristol- Myers Squibb Co., and Efient, from Eli Lilly & Co. and Daiichi Sankyo Co. Analysts consider the drug to be the next potential blockbuster that may offset generic threats to six medicines, including the two biggest sellers, Nexium for ulcers and the antipsychotic Seroquel.
“Upside from a share buyback far outweighs the potential risk from a negative vote/approval delay” of Brilinta by U.S. regulators, Hauber said. A $4 billion annual buyback in 2011, for example, would push earnings per share up by 20 percent by 2014, wrote Hauber, who raised AstraZeneca shares to “neutral” from “underweight.”
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, repurchasing 4.8 million shares for $214 million in the first quarter while saying it was on schedule to buy back a net total of $1 billion for the year. Spokesman Chris Sampson declined to comment on the company’s future buyback plan.
Brennan has shunned the approach taken by rivals GlaxoSmithKline Plc and Sanofi, who are instead spending cash reserves to expand in consumer products and generic drugs to counteract their patent woes. Roche Holding AG and Novartis AG have used their cash to pay down debt from acquisitions.