AstraZeneca’s Brennan to Retire; Lowth Named Interim CEO
AstraZeneca Plc (AZN) Chief Executive Officer David Brennan will retire from his post, ending a six- year tenure after repeated failures in drug development left investors skeptical of the company’s earnings prospects.
Simon Lowth, the chief financial officer, will serve as interim CEO until a replacement is chosen, the London-based company said today in a statement. AstraZeneca today cut its profit forecast for the year after first-quarter revenue sank on “challenging market conditions” and the loss of patent protection on several medicines. The stock fell the most in more than two years.
“This will be received positively,” Mark Belsey, an analyst at WestLB in London, said of Brennan’s departure in a telephone interview. “Brennan has done a good job but it’s time for someone to reinvigorate the pipeline. I still think licensing and small acquisitions are the way to go. They need someone to bring that strategy into play.” He recommends selling the shares.
Speculation mounted in March that Brennan, 58, would leave the job after the company nominated a new chairman. He steps down after AstraZeneca cut thousands of jobs, boosted dividends and bought back billions of dollars in shares. Sales growth slowed after patent protection was lost on medicines including Arimidex and Casodex for cancer, and the company didn’t bring enough new products to market.
AstraZeneca fell 6.1 percent to close at 2,666.50 pence in London, giving the company a market value of 33.9 billion pounds ($54.9 billion). The drop was the biggest since Dec. 17, 2010.
Before today, the stock had returned 38 percent including reinvested dividends during Brennan’s tenure through the end of last week, outpacing the 26 percent return for the Bloomberg Europe Pharmaceutical Index.
Most of those returns came from dividend payments. The stock sells for 6.9 times estimated 2012 profit, the lowest among the world’s 10 biggest drugmakers, reflecting investor skepticism about growth prospects.
Core earnings per share this year will be $5.85 to $6.15, the company said in a separate statement. AstraZeneca, the U.K.’s second-biggest drugmaker after GlaxoSmithKline Plc, in February forecast $6 to $6.30 a share. Revenue in the first quarter dropped 11 percent to $7.35 billion. Analysts predicted sales of $7.95 billion, the average of 21 estimates compiled by Bloomberg.
Andrew Baum, an analyst at Citigroup Inc., said in March that the appointment of Leif Johansson as chairman “would create the kind of board stability needed for management changes.” The Financial Times reported April 9 that some shareholders wanted to see Brennan ousted.
Johansson will take over the non-executive post from Louis Schweitzer on June 1, three months earlier than planned, to oversee the selection of a new CEO, AstraZeneca said. The company said it will consider internal and external candidates. Shareholders approved Johansson’s appointment at the annual meeting today. Julie Brown, a finance executive at the company, will become interim chief financial officer.
“The decision to retire was entirely my decision,” Brennan told journalists on a conference call today. “I had been thinking about it for a while. It was time for someone else to take the company to the next level.”
Brennan, an American, began his career as a pharmaceutical salesman for Merck & Co. (MRK), and later ran Merck’s collaboration with Swedish drugmaker Astra AB. Zeneca Group Plc bought Astra in 1999 to form AstraZeneca.
He took over as CEO at the start of 2006, replacing Tom McKillop. Brennan resisted the industry trends of expanding beyond patented pharmaceuticals or engaging in mega-mergers to offset the looming loss of sales to generic competitors. Instead, he focused on developing new medicines, either through in-house research or licensing agreements. “We’re going to figure out how to get through this,” he said in a 2010 interview.
While waiting for new products to emerge and boost earnings, AstraZeneca rewarded investors with cash. The company raised its dividend every year he was CEO, and Brennan oversaw AstraZeneca’s biggest share buyback last year, at $5 billion.
The drug development effort struggled. AstraZeneca in December terminated development of olaparib for ovarian cancer and ended a late-stage study of TC-5214 for severe depression. The Food and Drug Administration asked for more information on the diabetes treatment dapagliflozin, and may require new clinical trials, AstraZeneca and partner Bristol-Myers Squibb Co. said in January. The European Union’s drug regulator last week recommended approval of dapagliflozin.
In 2010, AstraZeneca dropped development of motavizumab for infant respiratory disease, after a U.S. advisory panel recommended against approval of the drug. A study in May 2010 showed the experimental drug Recentin didn’t help colon cancer patients. In June of that year, the FDA failed to approve Axanum for ulcers. Four potential blockbusters failed in late-stage trials between 2006 and 2008.
Drugs that account for more than 40 percent of sales will lose patent protection by the end of 2014. AstraZeneca’s second- best-selling drug, Seroquel for schizophrenia, lost U.S. patent protection in March, while the patent on Nexium for ulcers, the third-biggest seller, expires in the U.S. in 2014. The two generated $5.3 billion and $5 billion in sales last year, respectively.
Sales of Seroquel slumped 15 percent at constant exchange rates in the first quarter to $1.14 billion. Nexium, which already faces generic competition in Europe and Canada, slid 18 percent to $953 million and cancer treatment Arimidex fell 39 percent to $144 million. Sales of its blockbuster cholesterol drug Crestor were nearly unchanged from a year ago at $1.5 billion.
Crestor, its top seller with $5.7 billion in 2011 sales, faced increased competition from a copy of Pfizer Inc. (PFE)’s Lipitor in November.
AstraZeneca agreed on April 23 to buy Ardea Biosciences Inc. (RDEA) for $1.26 billion, gaining a drug called lesinurad, which is in most advanced phase of clinical tests for patients who have too much urea in their blood. The acquisition was the company’s first of more than $1 billion since buying MedImmune Inc. in 2007 for about $15.2 billion, and Brennan said in February he wasn’t looking for another deal of that size.
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