AZ 'in serious trouble' say analysts

Dresdner Kleinwort analysts have identified AstraZeneca (AZ) as being in 'serious trouble' and branded it as potentially the 'worst performer in the entire sector' over the next eight years.

The report, which was published on 12 November, predicts negative sales growth for AZ between now and 2015, with the company only managing to edge sales forward less than one per cent in the most positive scenario. In the worst case, the company could even see a sales decline of three per cent, which analysts say has a 50 per cent probability of occurring.

The analysts reveal that AZ's three major top line sales generators will be exposed to generic competition in the near future, as part of a total of eight patent expiries due over the next eight years for brands representing 60 per cent of current sales.

The report says: "The best case assumes that eight products become exposed to patent expiry up to 2015. The worst case assumes that generics hit Nexium (esomeprazole) and Seroquel (quetiapine) in 2008 and Crestor (rosuvastatin calcium) in 2009."

Dresdner Kleinwort was also alarmed by the fact that AZ only has eight significant products in the pipeline to be launched from 2009. Only four of these products were considered important enough to be included in the analyst forecast.

The analysts valued the average peak sales potential for each product at USD 1.5bn, explaining that the remaining product pipeline would not replace lost sales. Also, the report says that while other pharmaceutical companies will experience generic losses, none will be affected as badly as AZ.

The report concludes that any potential acquirer of AZ would need to consider the huge generic risks to the pipeline and that any acquisition valuation would have to consider the significant downside.