Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

In 2014, as AstraZeneca rejected a takeover bid from Pfizer, its CEO Pascal Soriot gazed into a crystal ball and saw his company hitting $45 billion in revenue by 2023. 

The prediction was met with skepticism at the time; the company had produced $25.7 billion in revenue the year before and was set to lose patents on its then-best-selling drugs, Nexium and Crestor, with $11 billion in peak combined sales. Soriot's prediction has only grown more dubious as 2023 has crept closer and that extra $20 billion in revenue has not. 

Astra Logical?
AstraZeneca shares have hit a record high in the U.K. on pipeline optimism and deal hopes
Source: Bloomberg

Perhaps inevitably, as Astra reported second-quarter results on Thursday, Soriot trimmed his long-range forecast to $40 to $41 billion, citing the strength of the U.S. dollar. But he also told Bloomberg News his target could shift back if the currency shifts favorably. 

Even in the unlikely event the dollar decides imitate the British pound, though, Astra is still unlikely to hit Soriot's mark. Wall Street consensus has Astra hitting just $32 billion in revenue in 2023, a huge discrepancy that highlights just how dodgy it is to forecast sales nearly a decade in advance -- true in any industry, but especially true in pharma.

High Hopes
Even a reduced revenue target is a high bar for AstraZeneca.
Source: Bloobberg

Drug development is expensive and prone to failure, the industry is under intense political and regulatory scrutiny, and promising drugs often fail to live up to commercial expectations. That doesn't seem to stop companies from making distant projections. Eli Lilly, for example, just gave sales growth guidance through the end of the decade, despite launching drugs in competitive classes and with an uncertain pipeline.

Astra certainly has promise, having built an interesting pipeline from almost nothing. It has rapidly become a cancer power player with the approval of lung cancer drug Targrisso, ovarian cancer drug Lynparza, big R&D investments, and the acquisition of Acerta and its blood cancer drug acalabrutinib.

But its patent troubles aren't done yet. A last-ditch legal effort to protect Crestor from U.S. generic competition failed last week.  Crestor missed sales expectations in the latest quarter by nearly $70 million and is set to rapidly retreat from its $5 billion in 2015 sales. Consensus sees $3.5 billion in sales this year and $2.1 billion in 2017. 

Cliff Dive
AstraZeneca still has sales to lose on two off-patent blockbusters.
Source: Bloomberg

Astra's hopes for hitting its lofty goal depend largely on playing catch-up in immuno-oncology (IO), drugs that help boost the immune system to fight cancer. It could be a $34 billion market by 2024 (speaking of long-range forecasts) led by a class of drugs called checkpoint inhibitors, but Astra's entry likely will be the fourth or fifth to market. Bristol-Myers Squibb and Merck already have blockbuster drugs in the class. Roche just had its own IO drug approved to treat bladder cancer. 

The company is focusing intently on a combination of two IO drugs, in hopes they'll be useful for a broader set of patients than individual IO drugs, which don't work well in many people. It expects results from key trials in the first half of 2017. But even on this front it's going head-to-head with Bristol-Myers, which already has such a combination approved. And the high prices of these combos are causing concerns

Shares jumped 7 percent to a record high in London on Thursday, possibly fueled by a cocktail of Soriot's optimism about the pipeline and revenue, along with takeover speculation (Novartis is a rumored suitor).

But unless the deal chatter turns into an actual bid, the company has a lot of work to do to turn its hopes into reality. Meanwhile, investors should remember that the typical fate of hyper-aggressive long-term guidance is to be massaged, walked back, or rendered obsolete.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net