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AstraZeneca Strategy Change Sought After Brennan Steps Down

AstraZeneca Plc (AZN)’s board is under pressure to find a dealmaker.

The London-based company yesterday named Chief Financial Officer Simon Lowth as interim chief executive officer after David Brennan resigned following criticism from investors. Lowth said yesterday he will stick to smaller acquisitions until the board reviews strategy in the second half.

Brennan’s resignation after six years in the job gives the board a chance to do something “aggressive,” said Navid Malik, an analyst at Cenkos Securities Plc in London. With sales slumping on competition from generic medicines and the company struggling to develop new products, AstraZeneca should find a CEO who won’t be content with smaller purchases and drug- licensing deals, he said.

“If you don’t have a strong pipeline and you have declining revenue, why would you continue to do small bolt- ons?” said Malik. “If someone comes in and is tasked with continuing the same strategy, it would be disappointing.”

AstraZeneca, the U.K.’s second-biggest drugmaker, will review its strategy in the second half, as it does every year, Lowth said on a conference call yesterday. In the meantime the company will stick to purchases in the low-single-digit billion- dollar range and invest in existing products, he said.

AstraZeneca should be talking to Abbott Laboratories (ABT) about merging with its Abbvie Pharma division, or Amgen Inc., whose bone drug Xgeva could benefit from AstraZeneca’s regulatory and marketing expertise, said Peter McDougall, CEO of London research firm Druganalyst Ltd., who has followed the drug industry for 27 years. Other analysts have speculated that the company could buy Forest Laboratories Inc. (FRX), Amarin Corp. and Amylin Pharmaceuticals Inc. (AMLN)

New Chairman

Brennan, 58, leaves his post June 1, and the company is beginning a search for a permanent successor. Chairman Leif Johansson will join the company on the same date, three months earlier than planned, to oversee the search. New board members will “bring fresh perspective to stimulate our thinking” about the future, Lowth said.

Shareholders approved Johansson’s appointment yesterday. Brennan made the decision to leave and wasn’t ousted, outgoing Chairman Louis Schweitzer told shareholders yesterday.

For now, optimism that a new CEO will find a way to boost growth in the future is being outweighed by disappointing results in the present. AstraZeneca shares slumped the most in more than two years yesterday after the company reported an 11 percent drop in first-quarter sales and cut its profit forecast for the year because of generic competition.

Patent Cliff

While AstraZeneca has the lowest valuation among the world’s 10 largest drugmakers, selling the company probably isn’t an option, said McDougall in a phone interview.

AstraZeneca’s sales and profits are projected to fall as two of its best-selling drugs, Seroquel for schizophrenia and ulcer medication Nexium, lose patent protection by 2014. Seroquel and Nexium alone generated about $10.3 billion of sales last year, or about 30 percent of the company’s total, according to data compiled by Bloomberg. Crestor, its top seller with $6.6 billion in 2011 sales, faces competition from a generic version of Pfizer Inc.’s Lipitor, which entered the market last year.

AstraZeneca agreed this week to buy Ardea Biosciences Inc. (RDEA), a San Diego-based company that has a gout treatment in the final stages of clinical trials, for $1.26 billion. The acquisition is the company’s first of more than $1 billion since the $14.7 billion takeover of MedImmune Inc. in 2007, data compiled by Bloomberg show. Brennan told reporters in February he wasn’t looking for “transformational” deals, and acquisitions would be smaller than the MedImmune purchase.

Delaying Tactic

Lowth said the company will continue to look for acquisitions of drugs that are well along in their development. “Our first priority is to strengthen our late-stage pipeline,” he said.

“Making small acquisitions isn’t a strategy, it’s a tactic to buy time until the pipeline delivers,” said McDougall, who recommends buying AstraZeneca shares on optimism that the company will do what needs to be done to revive earnings. “What I need is clarity on the strategy. I’m not sure if they ever really had one.”

To contact the reporter on this story: Allison Connolly in Frankfurt at aconnolly4@bloomberg.net.

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net.

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