AstraZeneca CEO quits as drug sales tumble

LONDON Thu Apr 26, 2012 10:20am EDT

AstraZeneca Chief Executive David Brennan speaks at Boston College's Chief Executives' Club of Boston luncheon in Boston, Massachusetts May 6, 2008. REUTERS/Brian Snyder

AstraZeneca Chief Executive David Brennan speaks at Boston College's Chief Executives' Club of Boston luncheon in Boston, Massachusetts May 6, 2008.

Credit: Reuters/Brian Snyder

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LONDON (Reuters) - AstraZeneca's chief executive David Brennan is to step down on June 1 in an abrupt exit after six years in the top job, following rising investor discontent at the company's performance.

Britain's second-biggest drugmaker has suffered repeated drug development setbacks, stoking fears about its long-term prospects given a complete reliance on prescription medicines at a time when rivals have diversified.

The group cut its full-year profit forecast as sales fell 11 percent in the first quarter, badly missing expectations, and underlying earnings dropped 19 percent, highlighting the need to find new sources of growth as multiple drug patents expire.

Its shares were down 5.9 percent by 1225 GMT.

AstraZeneca has recently accelerated its pace of deal-making, to bring in more promising new drugs from other companies, but Brennan, 58, has been under fire from investors for not acting sooner, leading to calls from some for him to go.

He will be replaced on an interim basis by Chief Financial Officer Simon Lowth, 50, while a permanent successor from inside or outside the company is found, AstraZeneca said on Thursday.

At the same time, Leif Johansson will succeed Louis Schweitzer as non-executive chairman on June 1 - three months earlier than planned - and will head the nomination and governance committee after the annual meeting later on Thursday.

Despite only joining the board on April 26, the former Volvo boss was closely involved in deciding that Brennan, who asked to retire, should go sooner rather than later, according to one person familiar with the board's thinking.

"Having someone in a lame-duck position wasn't considered helpful," the person said.

By moving into his new position early, Johansson will take charge of the hunt for Brennan's replacement. Headhunters Spencer Stuart have been appointed to help with the search.

Brennan's exit sparked speculation of a change in strategy.

"We're actively going to start looking at the stock again - with a new CEO coming in we see change," said Stephanie Maher, a fund manager at AGF International Advisors, which sold its AstraZeneca holding around three months ago.

She wants to see an outsider brought in to head the firm, adding: "He has to rethink strategy. He could look at Glaxo and Sanofi ... there is potential to benchmark against those players."

Brennan and Lowth told reporters, however, that AstraZeneca would not rush to change direction from its current strategy of seeking small bolt-on deals, worth up to the low single-digit billions of dollars, and eschewing "transformational" deals.

Lowth said he would join in the board's annual strategy review over the summer, adding any updates on strategy were typically given alongside the next set of full-year results.

LOWEST MULTIPLE

AstraZeneca faces a slump in sales, following the loss of patent cover on antipsychotic drug Seroquel last month, while heartburn pill Nexium and its top-selling heart drug Crestor lose U.S. protection in 2014 and 2016 respectively.

It has few new drugs in development to replace these big sellers and its problems mean its shares trade on only around seven times this year's expected earnings, the lowest multiple for any major international drug company.

Brennan, an American who started out as a salesman for Merck & Co, has placated some shareholders in recent years by slashing costs, firing staff, and returning billions in share buybacks and dividends.

But simply shrinking the business is not enough and investors want to know where tomorrow's drugs will come from.

Recent setbacks for experimental depression and ovarian cancer medicines mean confidence in the group's ability to rejuvenate the pipeline internally is at rock bottom - and Brennan has a poor reputation for striking smart external deals.

His 2007 purchase of U.S. biotechnology company MedImmune for $15.6 billion was slammed at the time and has been criticized ever since for the high price paid and the scant pipeline rewards it yielded.

In the last few weeks, AstraZeneca has stepped up its deal-making again in a drive led by research head and ex-Pfizer executive Martin Mackay, with moves to buy gout drugmaker Ardea Biosciences for $1.26 billion and a collaboration with Amgen.

SEROQUEL HIT COMING

Although the main hit from the loss of Seroquel is yet to come, group sales already fell 11 percent in the first three months, weighed down by wholesaler destocking of the drug, a tough year-ago comparison and generic competition for other drugs in Europe.

Bernstein analyst Tim Anderson summed up the results in an email headlined "Ouch!", noting that Crestor, Seroquel and Nexium sales were all below forecasts and the performance in nearly all geographies was weak.

Sales in the quarter were $7.35 billion, generating "core" earnings, which exclude certain items, down 19 percent at $1.81 a share. Reported pretax profit slumped 38 percent to $2.05 billion.

Analysts, on average, had forecast sales in the quarter of $7.92 billion and earnings of $1.79 per share, according to Thomson Reuters I/B/E/S.

AstraZeneca cut its forecast for full-year core earnings to between $5.85 and $6.15 a share from $6.00-$6.30 previously and against $7.28 in 2011. It also said revenues in 2012 would fall by a low- to mid-teen percentage rate, after previously predicting a low double-digit rate.

(Additional reporting by Sinead Cruise; Editing by Sophie Walker and Greg Mahlich)

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