* Standalone strategy hinges on new drugs delivering
* AstraZeneca has had more than fair share of flops in past
* Experiences with Exanta, other failures haunt company
By Ben Hirschler
LONDON, May 20 AstraZeneca's confidence
in its promising new drugs may have seen off Pfizer's
$118 billion takeover bid for now, but investors are left
contemplating the lessons from 2004, when it was also trumpeting
its product pipeline.
AstraZeneca became renowned a decade ago for talking up the
prospects for its new treatments under former chief executive
Tom McKillop, only to see key experimental medicines tumble like
ninepins in a series of development setbacks.
By the time McKillop left in 2006 to chair the ill-fated
Royal Bank of Scotland, its new drug pipeline was
fractured and AstraZeneca had a reputation for dismal research
productivity that it has only recently started to shake off.
The biggest pipeline wipe-out came in 2004 when Exanta,
which could have been the first of a new class of oral
anticoagulants to reach the market, was deemed too dangerous by
Since then AstraZeneca has continued to have more than its
fair share of late-stage drug failures, including products for
diabetes, stroke, depression and rheumatoid arthritis, all of
which were once seen as potential multibillion-dollar sellers.
That track record has not been forgotten by investors who
remain sceptical about the claims for a line-up of life-saving
new treatments that have featured prominently in the battle to
win hearts and minds in recent weeks.
In its fightback against Pfizer, AstraZeneca's current CEO
Pascal Soriot made bullish pipeline projections a central plank
of his defence, predicting a 75 percent increase in annual sales
to $45 billion by 2023.
AstraZeneca Chairman Leif Johansson told Reuters on Monday
that his firm was now "the most transparent pharmaceutical
company in the whole world", following its decision to publish
its 10-year planning forecasts on May 6.
The challenge for Soriot and Johansson is to make good on
"The problem with putting big sales numbers out there is you
have to live up to them. If anyone believes the industry has
suddenly become less risky, they are misguided," said Mark
Clark, an analyst at Deutsche Bank.
"It is not just the risk of your own product, there is also
fast-follower risk these days, because rival companies are
increasingly hot on the heels of a new idea."
There is a good reason why, in normal times, drugmakers like
to keep much of their early research under wraps, since they are
fearful that promising too much simply sets them up for a fall,
as AstraZeneca found out a decade ago.
While investors agree AstraZeneca has some promising new
drugs, especially for cancer, they view the 2023 forecasts as
highly speculative and no sure bet to propel the shares to
Pfizer's 55 pounds-per-share offer level.
The valuation gap between AstraZeneca's current share price
and Pfizer's offer is currently more than $25 billion.
"I do not know whether AstraZeneca will hit their 2023 sales
target, but I do know that 2023 is a long way off, and such
success is far from certain," said one top-10 shareholder.
Some of AstraZeneca's biggest sales projections are for its
new immunotherapy drugs for cancer, such as MEDI4736, which it
believes could achieve peak sales of $6.5 billion a year.
But AstraZeneca is lagging rivals such as Bristol-Myers
Squibb, Merck & Co and Roche in the
field of tapping the immune system to fight cancer, and its
attempts to catch up hinge critically on the power of clinical
Some of that data will be presented at an American Society
of Clinical Oncology (ASCO) conference on May 30-June 3.
"They've clearly implied there's going to be very positive
data, and it had better look bloody good," said one top-30
Converting promising early research into winning commercial
products is a growing challenge for drugmakers, reflecting both
increasing scientific competition in hot areas like oncology but
also the high hurdle set by governments and insurers in paying
for expensive new drugs.
That is equally true in other areas where AstraZeneca has
flagged promising pipeline assets, such as respiratory drugs,
where it is up against powerful players like GlaxoSmithKline
that have their own products in development.
Some analysts, like Citi's Andrew Baum, reckon AstraZeneca
does have a truly impressive pipeline, though even his 49
pounds-a-share valuation for the shares on a standalone basis
remains short of the 55 pounds offered by Pfizer.
Bernstein analyst Tim Anderson is more cautious, writing in
a note that AstraZeneca's "track record in R&D is not exactly a
shining star, and this may have at least some predictive value".
That view may resonate with the fund manager who commented
back in 2004: "AstraZeneca looked like it had a great pipeline,
but suddenly it doesn't look quite as good any more."
(Additional reporting by Chris Vellacott; Editing by Will