AstraZeneca Suspends Share Buyback Amid Strategy Review

AstraZeneca Plc's New Chief Executive Officer Pascal Soriot
AstraZeneca Plc's new Chief Executive Officer Pascal Soriot said, “As I assume my new responsibilities at AstraZeneca, I believe this is a prudent step that maintains flexibility while the board and I complete the company’s ongoing annual strategy update.” Source: AstraZeneca Plc via Bloomberg

AstraZeneca Plc suspended share buybacks as the board and new Chief Executive Officer Pascal Soriot review strategy at the U.K. drugmaker, prompting renewed speculation that the company will embark on larger takeovers.

AstraZeneca has repurchased $2.3 billion of stock this year, compared with an initial target of $4.5 billion, the London-based company said in a statement today. The company confirmed its forecast for profit excluding some items this year of $6 to $6.30 a share.

The decision to stop repurchasing shares gives the drugmaker more flexibility to undertake a big acquisition, said Brian Bourdot, an analyst at Barclays Plc’s investment-banking unit in London. Under Soriot’s predecessor, David Brennan, AstraZeneca stuck to smaller purchases and licensing agreements to replenish sales as its best-selling drugs lose patent protection and face generic competitors.

“It’s a bit of a surprise that they changed course mid-year, but a new chief executive likes to take control and see what the options are,” Bourdot said in a telephone interview. “It would increase their ability to do a deal, that’s something we have to bear in mind.”

Strategy Review

AstraZeneca, the U.K.’s second-largest pharmaceutical company after GlaxoSmithKline Plc, fell 1 percent to close at 2,925 pence in London trading.

AstraZeneca is undergoing its annual strategy review, and has said it plans to announce the results in January, when it reports 2012 earnings. The company also will provide a forecast for 2013 at that time, according to today’s statement.

“As I assume my new responsibilities at AstraZeneca, I believe this is a prudent step that maintains flexibility while the board and I complete the company’s ongoing annual strategy update,” Soriot said in the statement.

Soriot, 53, takes over today at AstraZeneca. Brennan stepped down June 1 after setbacks in drug research.

Dividends, Buybacks

Under Brennan, AstraZeneca focused on paying dividends and buying back shares to provide a return for investors while the company waited for experimental drugs to make it to the market and boost earnings. Brennan told investors not to judge the company by its earnings as it went through patent expirations on some the company’s key drugs.

Brennan said repeatedly the company wouldn’t do any deals on the scale of AstraZeneca’s purchase of MedImmune Inc. in 2007 for about $15.2 billion. Analysts criticized the company for overpaying for MedImmune. Since then, the company has done only one acquisition of greater than $1 billion, the purchase of Ardea Biosciences Inc. for $1.1 billion this year.

Repeated failures in drug development undermined that approach, and Brennan retired this year. AstraZeneca pays an annual dividend equal to 6.2 percent of the share price, the highest yield among the world’s 10 biggest drug companies. Last year the company paid out $3.68 billion in dividends, according to data compiled by Bloomberg.

MedImmune's Lesson

“I don’t think they will do a deal unless it adds value,” Bourdot said. Management “learned its lesson” from MedImmune, he said. Barclays has an equalweight rating on the shares.

Drugs including Seroquel and Nexium that account for 44 percent of AstraZeneca’s sales lose patent protection from this year through the end of 2014.

Buybacks won’t help revenue grow, Navid Malik, an analyst with Cenkos Securities Plc, said in an interview. AstraZeneca probably will consider acquiring a biotechnology company or products, he said.

“I think there is a big change in strategy coming for AstraZeneca,” he said. “It really needs to go down the biologics route and he comes from a deep biologics background. They can’t do it organically, it would take too long.”

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