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AstraZeneca Declines Most in 5 Months on Forecast: London Mover

AstraZeneca to Buy Back $4.5 Billion in Stock, Cut More Jobs
AstraZeneca Plc's Seroquel schizophrenia medication is arranged for a picture. Photographer: JB Reed/Bloomberg

AstraZeneca Plc, the U.K.’s second-biggest drugmaker, fell the most in five months after saying profit this year will decline as the company prepares to face generic competition to top-selling medicines.

Core earnings, which exclude reorganization and other one-time costs, will be $6 to $6.30 a share, down from $7.28 in 2011, the London-based company said today in a statement. AstraZeneca said it will buy back another $4.5 billion of stock this year and cut 7,300 jobs, or about 12 percent of the company’s workforce.

Patent protection on the drugmaker’s best-selling medicines, including the ulcer treatment Nexium and antipsychotic medication Seroquel, expires over the next four years. The two products accounted for more than $10.2 billion in revenue last year. Sales will fall this year by a percentage in the low double-digits, the company said.

“Although the buyback program is a positive, EPS guidance relies heavily on cost savings and the revenue outlook is weak,” Deutsche Bank analysts including Mark Clark wrote in a note to investors.

AstraZeneca fell 3.4 percent, the biggest decline since Sept. 2, to 2,984 pence in London. The stock has gained 3.1 percent in the past year including reinvested dividends, compared with a 17 percent return in the Bloomberg Europe Pharmaceutical Index.

Job Cuts

The job cuts announced today come on top of 21,600 positions already eliminated by Chief Executive Officer David Brennan since 2007. The reductions will cost $2.1 billion and save $1.6 billion a year by the end of 2014, the company said.

AstraZeneca will cut about 3,750 sales, general and administrative jobs, 2,200 positions in research and development, and another 1,350 in operations. The company took a restructuring charge of $261 million during the quarter.

The drugmaker said it will revamp the way it conducts neurological research, creating a unit of 40 to 50 scientists based in Boston and Cambridge, England. That will lead to the closing of a research site in Montreal and a reduction in positions at Soedertaelje, Sweden, AstraZeneca said. The drugmaker will continue seeking new treatments for cardiovascular, gastrointestinal, infectious, respiratory, inflammatory and neurological diseases, as well as cancer.

Acquisition Strategy

Brennan repeated the company’s strategy to acquire products or smaller companies to add products to the company’s pipeline and said he’s not looking for “transformational” deals. Any acquisition would be smaller than the $14.7 billion purchase of MedImmune Inc. in 2007, he told journalists at a press conference in London today.

AstraZeneca last year purchased about about $5 billion in stock in 2011, its biggest buyback to date. The repurchasing plan and job cuts were larger than expected, Justin Smith, an analyst with Oriel Securities Ltd. in London, said in an interview. While the company lowered its forecast for drug revenue, its profit estimate remains unchanged, which “shows good cost execution,” he said.

“By the time we get to 2014 they’ll have taken $6 billion out of the cost base,” Smith said. “We all know they have a weak pipeline, but they’re doing what they can to cut costs and return money to shareholders.”

Core earnings rose to $1.61 a share from $1.39 in the quarter, the company said. That topped the $1.58 average estimate of 18 analysts surveyed by Bloomberg. On that basis, profit for the full year beat the $7.24 average estimate of 30 analysts and met the company’s forecast of $7.20 to $7.40.

Drug Sales

Sales for the quarter were little changed at $8.6 billion, beating the $8.58 billion estimate of 23 analysts. Generic competition cost the company $450 million during the fourth quarter, and revenue was also hurt by government price cuts, the company said.

Revenue from the cholesterol-lowering pill Crestor, AstraZeneca’s biggest-selling drug, grew even after generic versions of Pfizer Inc.’s rival Lipitor entered the market in November. Crestor generated $6.6 billion in sales last year, and revenue increased 11 percent to $1.77 billion in the quarter.

AstraZeneca received U.S. regulatory clearance for blood-thinner Brilinta in July. The drug is now approved in 64 countries and has been introduced in 37 markets, the company said today. Brilinta, sold as Brilique in Europe, had sales of $5 million in the quarter, which Barclays Capital analysts called “disappointing” in a note to investors today.

New Products

The U.S. Food and Drug Administration requested more data on experimental diabetes pill dapagliflozin, delaying approval. AstraZeneca said it’s working with the FDA on the next steps for the application for dapagliflozin, which it’s developing with New York-based Bristol-Myers Squibb Co. Bristol-Myers Chief Executive Officer Lamberto Andreotti said in a Jan. 30 interview that the company is still committed to dapagliflozin.

Following the FDA letter and other setbacks in drug development, AstraZeneca said today it estimates revenue from newer drugs and its pipeline will generate $2 billion to $4 billion in revenue by 2014, down from a range of $3 billion to $5 billion previously. It still expects revenue to be between $28 billion to $34 billion annually through 2014.

“The buyback will appease the investors who are looking for signs of growth but it won’t solve the problem,” Navid Malik, an analyst with Cenkos Securities Plc in London, said in an interview today. “They need to drive innovation in their pipeline to generate revenue.”

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