AstraZeneca sees earlier patent-cliff recovery, thanks to $4 billion diabetes buyout

AstraZeneca's ($AZN) decision to buy out Bristol-Myers Squibb's ($BMY) share of their diabetes partnership is already paying off. That $4 billion deal is on track to close this quarter and puts AstraZeneca's numbers on a much more solid footing--solid enough, in fact, to weather the big Nexium patent expiration this year and rebuild sales by 2017.

That's the latest story from AstraZeneca, which offers a more detailed pipeline update and general forecast at the J.P. Morgan Healthcare Conference today. Analysts quickly followed the company's updates with higher revenue forecasts and new-drug predictions.

For instance, Mark Clark of Deutsche Bank told Reuters that he's looking at $24.3 billion in 2017 revenue, up from $22.5 billion. Leerink Swann analyst Seamus Fernandez, meanwhile, upgraded the shares and hiked his price target to $68 from $55, citing the company's move toward biologics and away from small-molecule drugs.

But there's a cloud to that silver lining, at least for AstraZeneca's workforce. In Fernandez's view, the company will be holding a tight line on sales and administrative expenses as Nexium and Crestor generics erode billions in annual sales. AstraZeneca's top line will shrink until newer drugs kick in--and in the meantime, keeping SG&A costs at around 30% of sales means some cost cuts, the analyst said.

And the company may not stop there as its product mix skews more toward biologics, which tend to require less costly sales support than mass-market small-molecule drugs do. "[W]e strongly believe that as management's visibility improves on the potential change in business mix over the next two years, a restructuring that lowers AstraZeneca's overall SG&A spending to be at least in line with the industry average of 27-30% is highly likely," Fernandez wrote in an investor note this morning. Potential cost savings? Up to $1.2 billion.

Already, AstraZeneca is cutting costs and revamping operations, with plans to consolidate R&D into several hubs, move its headquarters to Cambridge, U.K., from London, and cut 2,300 sales and administrative jobs. Two top commercial executives left in November, after the company combined its North American sales operations with its MedImmune unit's marketing force.

All the while, Nexium's patent loss loomed. The U.S. exclusivity expires in May, putting $2.3 billion in sales at risk. Crestor's patent won't expire till 2016, but the drug already faces competition from generic versions of rival cholesterol pill Lipitor, from Pfizer ($PFE). Pumping up diabetes sales and leaning on CEO Pascal Soriot's other growth targets--including the underperforming blood-thinner Brilinta--remain daunting tasks.

- see the release from AstraZeneca
- get more from Reuters

Special Reports: Top 10 Pharma Companies by 2012 Revenue - AstraZeneca | Top Biopharma M&A deals of 2012 - Bristol-Myers Squibb and AstraZeneca/Amylin

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