Astrazeneca In Trouble, Says S&P

Three weeks ago, Pascal Soirot unveiled a months-long effort to rebuild AstraZeneca, which he joined last fall as ceo amid a disheartening lack of new drugs and increased generic competition. His plan revolves around consolidating R&D and global marketing operations over the next two years, a move that will eventually eliminate 1,600 jobs by 2016 and save some $900 million annually. Earlier this year, Soirot also booted the former head of global commercial activities and created a new position to bridge R&D and sales (read more here).

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Initially, the response to his plan was enthusiastic, at least among investors. Since the mid-March pronouncement, AstraZeneca stock has climbed roughly 20 percent. But not everyone is enamored with the planned changes. Standard & Poor’s has revised its outlook for the drugmaker to negative from stable. Why? “We believe… the strategy will not halt the downward trend in revenue declines following blockbuster patent expirations,” which is otherwise known as the patent cliff.

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Specifically, S&P cites the well-known patent expirations looming for the Seroquel IR antipsychotic, the Nexium acid reflux pill and the Crestor cholesterol med, all of which face generic competition between 2014 and 2016. Meanwhile, the credit rating agency foresees a 9 percent decline in revenue this year. In the ‘silver lining’ category, S&P affirmed AstraZeneca’s credit, thanks to an “above average” metric of earnings before interest, taxes, depreciation and amortization of about 37 percent last year. Then again, this was off from 43 percent in 2011 (here is the S&P statement, which requires registration to read).

The upshot is that S&P sees a one-in-three chance of lowering the long-term credit rating. The likelihood increases with the sort of news released late last week. An experimental rheumatoid arthritis pill called fostamatinib met only one of two goals in a late-stage clinical trial, Previous studies also yielded disappointing results, eroding investor confidence that AstraZeneca would be able to successfully compete against Humira, a blockbuster sold by AbbVie (ABBV), and a new entrant called Xeljanz from Pfizer (PFE) (read here).

In the latest trial, the AstraZeneca (AZN) achieved a statistically significant improvement at 24 weeks compared to a placebo in a test assessing signs and symptoms of the disease. But the medication failed to show an improvement in an X-ray test measuring the progression of joint damage, according to results released by the drugmaker (look here).

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