We are maintaining our Neutral recommendation on
) with a target price of $49.00. The stock carries a Zacks #3 Rank
(Hold rating) in the short run.
AstraZeneca performed disappointingly in the second quarter of
2012. The company's second quarter 2012 earnings were down 6% year
over year at constant exchange rates (CER) to $1.53 per American
Depositary Share (ADS). Lower revenues (down 18% at CER) negatively
impacted earnings during the quarter.
The generic competition that AstraZeneca is currently facing or
expects to face for its various drugs has put significant pressure
on the company. Generic competition was primarily responsible for
the $2 billion loss of revenues in 2011. The genericization of key
products will make it challenging for the company to drive the top
In addition to generic threats, AstraZeneca's products already face
intense competition from big companies. AstraZeneca's lead drug,
Crestor (cholesterol management), primarily competes with
) Zocor/Vytorin. With the entry of generic versions of Lipitor in
November 2011, Crestor may find it challenging to grow market
share. Nexium primarily competes with
) Protonix. Loss of market share due to intense competition will
severely impact AstraZeneca's top line.
AstraZeneca is laying emphasis on bolstering its pipeline through
acquisitions and deals to counter the generic threat. In June 2012,
AstraZeneca acquired Ardea Biosciences, thereby adding gout
candidate lesinurad to its pipeline.
In addition to acquisitions, the company is targeting
co-development deals. AstraZeneca inked a deal with Pfizer in
August 2012 for the marketing of an over the counter (OTC) version
of AstraZeneca's Nexium (gastroesophageal reflux disease and peptic
ulcers). AstraZeneca will continue marketing the prescription
product and also supply the OTC product to Pfizer. Subsequently,
AstraZeneca raised its 2012 earnings guidance. AstraZeneca now
expects 2012 adjusted earnings in the range of $6.00 - $6.30
(previous guidance: $5.85 - $6.15) per ADS. The guidance was raised
as AstraZeneca expects to recognize $250 million as upfront payment
from Pfizer for the Nexium OTC deal as other income in 2012. This
will boost its balance sheet.
AstraZeneca is also focusing on emerging markets. Revenues from
emerging markets climbed 10% year over year to $5.8 billion in
2011. Emerging markets represent significant commercial
opportunities with factors like pricing pressure in the EU and
intensifying generic competition affecting sales in large
pharmaceutical markets. AstraZeneca strengthened its presence in
the promising Chinese market with its global biologics division
MedImmune joining forces with WuXi AppTech, a subsidiary of
WuXi PharmaTech Inc.
(WX), to develop and commercialize MEDI5117 in the country.
MEDI5117 is being developed for autoimmune and inflammatory
diseases such as rheumatoid arthritis.
In view of the challenges facing AstraZeneca, we see limited upside
from current levels.
ASTRAZENECA PLC (AZN): Free Stock Analysis
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