New AstraZeneca CEO sees big profit and sales fall

LONDON Thu Jan 31, 2013 9:02am GMT

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LONDON (Reuters) - AstraZeneca's (AZN.L) new boss said the drug maker faced a tough year, with sales expected to fall by a mid-to-high single digit percentage rate as patent expiries continued to erode business.

Earnings will decline "significantly more than revenue" this year as operating costs rise, Britain's second biggest drug maker said on Thursday.

The outlook was worse than the decline of around 3 percent in 2013 sales that analysts had been expecting, and shares in the group fell 4.1 percent by 8:40 a.m. British time.

Brokerage Jefferies said a decision not to increase the dividend for the second half of 2012 was also disappointing.

Chief executive Pascal Soriot hopes eventually to turn the group around by investing in existing growth areas such as emerging markets, diabetes care and new heart drug Brilinta.

Soriot, who joined from Roche (ROG.VX) in October, is also weighing the case for acquisitions. He will set out his strategy in detail during a keenly awaited investor day on March 21.

In a bid to clear the decks and give himself a free hand, Soriot said he had withdrawn mid-term planning assumptions for profit margin and revenue set by previous management.

Fourth-quarter sales fell 16 percent to $7.28 billion (4.6 billion pounds), generating core earnings, which exclude certain items, down 3 percent at $1.56 per share. The slower decline in earnings reflected lower costs and a favourable tax adjustment.

Analysts had, on average, forecast sales of $7.20 billion and earnings of $1.35 per share, according to Thomson Reuters I/B/E/S.

"Our performance in 2012 reflects a period of significant patent expiry and tough market conditions globally," Soriot said.

Faced with loss of exclusivity on once best-selling medicines and a thin pipeline of new drugs, Soriot needs to consider bold moves to get AstraZeneca back on its feet.

He has to tread carefully on new investment if he is to avoid disappointing investors who own the stock as an income play, given its near 6 percent dividend yield.

His decision to suspend share buybacks on his first day in the job four months ago prompted speculation he might embark on sizeable acquisitions.

Many analysts expect Soriot to follow the lead set by Bristol-Myers Squibb (BMY.N), which has used what it calls a "string of pearls" strategy to boost revenue through small or mid-sized purchases. There has also been speculation he might do a large deal, such as buying Shire (SHP.L).

BIG HITS TO COME

AstraZeneca is not alone in facing big patent losses.

But while rivals such as GlaxoSmithKline (GSK.L) and Sanofi (SASY.PA) are past the worst, AstraZeneca's biggest losses are to come, with Nexium for stomach acid and cholesterol fighter Crestor losing U.S. protection in 2014 and 2016 respectively.

As a pure pharmaceuticals group, without the cushion of alternative revenue streams found at more diversified rivals, AstraZeneca is particularly exposed to patent losses on key prescription drugs.

Short-term wins from its new drug pipeline look unlikely, with expectations for experimental rheumatoid arthritis drug fostamatinib dwindling after disappointing clinical trial results last month.

One established medicine that may surprise on the upside is diabetes drug Onglyza, which is marketed with Bristol-Myers and could potentially show a heart benefit in a clinical study that will report later this year.

Heart drug Brilinta, which had been viewed as big winner initially, continued to struggle to generate sales in the three months to end-December, with sales totalling $38 million.

AstraZeneca shares have gained ground in recent months but the stock remains the laggard of the global pharmaceutical sector, trading on around 8.6 times expected earnings, a 30 percent discount to large British rival GSK.

The group has already slashed thousands of jobs to cut costs in recent years, and two weeks ago Soriot removed the heads of both research and worldwide sales.

(Editing by Kate Kelland and Dan Lalor)

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