AstraZeneca offloads RSV drug to Sobi for $1.5B, its largest divestiture in 5 years

AstraZeneca's latest deal is part of a larger strategy to drive growth by cutting costs and focusing on newer medicines to treat cancer, respiratory and heart conditions. (AstraZeneca)

AstraZeneca’s goal of doubling its annual revenues to $40 billion by 2023 is only part of CEO Pascal Soriot’s pledge to get the company back on a strong growth path. He also wants to improve the company’s bottom line by cutting costs and driving up cash flow—largely by offloading older medicines so it can focus on more lucrative opportunities.

It’s no surprise, then, that AZ has just struck its third deal since Oct. 30, handing off the U.S. rights to Synagis, a drug to prevent infections caused by respiratory syncytial virus (RSV), to Sweden’s Sobi. AstraZeneca is picking up $1 billion in cash and $500,000 in shares up front, as well as an 8% ownership stake in Sobi. The total value of the deal, including deferred and contingency payments, is $2.3 billion, making it AZ’s largest divestiture in the last five years, noted Jefferies, which was the financial adviser to Sobi on the deal.

The transaction will allow “AstraZeneca to allocate resources more effectively,” Soriot said in a statement. Specifically, it will free up the company to focus on a next-generation, single-dose RSV drug called MEDI8897, which it is developing with Sanofi. Sobi can participate in payments AZ receives from U.S. sales of MEDI8897 under Tuesday’s deal.

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AstraZeneca has been on a tear in the past few weeks when it comes to cash-generating transactions. On Oct. 30, it sold certain rights to Nexium and Vimovo to Grünenthal for $922 million. Then it formed a pact with Covis Pharma, scooping up $350 million in a sale of rights to respiratory drugs Alvesco, Omnaris and Zetonna. AZ had previously signed agreements with Recordati, Aspen, Pfizer and Ironwood.

Wall Street critics have blasted AstraZeneca’s rummage-sale strategy as unsustainable, but that doesn’t bother Soriot, who doubled down on the company’s growth pledge during the company’s third-quarter earnings call last week. “We’re very clear that we need to increase operating margin, drive profitability up, take the top line growth to the bottom line, improve our cash flow,” he said.

The company’s 9% year-over-year sales growth was driven by a few key products, including lung cancer drug Tagrisso, which beat estimates by racking up $506 million in sales during the third quarter. Lung cancer drug Imfinzi and diabetes treatment Bydureon also performed well, bringing in $187 million and $152 million, respectively.

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Soriot credited the company’s focus on newer products for its return to growth, noting during the earnings call that sales of drugs in its key focus areas of respiratory, cardiovascular and oncology accounted for 70% of total revenues. But that came with a cost: AZ’s sales, general and administrative costs have risen 7% year-to-date because of its need to invest in new drug launches and in its growing business in China.

The huge mound of cash from the Sobi deal will no doubt help AstraZeneca get on top of its $16.2 billion in debt. Soriot said during the earnings call that he envisioned a reduction in debt starting in 2020. “We can see the light at the end of this tunnel,” he said.