There’s nothing like a plain-spoken analyst report to clear the head. And the gurus at Dresdner Kleinwort apparently issued one such missive concerning Dave Brennan and his team. They wrote that AZ is in ’serious trouble’ and is the ‘worst (large-cap stock) performer in (the) entire sector’ over the next eight years, according to OutsourcingPharma.

Between now and 2015, they predict negative sales growth for AZ - less than 1 per cent, at best - and a sales decline of up to 3 per cent. “The worst case scenario, in our view, is not a blue sky scenario, but is one that needs to be seriously considered… [it] has a 50% probability of occurring”, the analysts wrote, according to OutsourcingPharma. An AZ spokesman responded that “they are entitled to their opinion and we will have to wait and see.”

The analysts reportedly based their estimations on the significant risk hanging over AZ’s three major drugs, which will soon face generic competition. In fact, a total of eight patents expire over the next eight years for brands representing 60 per cent of AZ’s current sales. “The best case assumes that eight products become exposed to patent expiry up to 2015…The worst case assumes that generics hit Nexium and Seroquel in 2008 and Crestor in 2009,” the analysts wrote.

Dresdner Kleinwort also expressed concern over the fact that AZ only has eight significant products on the horizon, slated for launch from 2009 onwards. Out of these, only half were even deemed suitable to be included in their financial forecast.

The analysts valued the average peak sales potential for each product at $1.5bn. “Unfortunately, the remaining product pipeline cannot replace lost sales and whereas other pharmaceutical players will experience generic losses, none will be as deep or for as prolonged as they are for AstraZeneca”, they wrote.

Meanwhile, Dresdner Kleinwort’s worst case scenario also assumes that one of AstraZeneca’s most prominent new products, saxagliptin, “fails to gain approval based on safety grounds.” It therefore was not included in the analysts’ sales forecast. Saxagliptin is a DPP-IV inhibitor being co-developed with Bristol-Myers Squibb and may be ready for launch in 2009.

However, a rival DPP-IV inhibitor, Novartis’ Galvus, has recently been associated with a dose-related impact on liver enzyme levels and Novartis has sought label revisions over potential liver toxicity with a once-daily formulation. Because there is a “striking similarity between Galvus and saxagliptin,” structurally and mechanistically, the analysts fear that “the liver safety issue developing for Galvus could be a problem for saxagliptin.”

Meanwhile, in terms of merger and acquisition activity, Dresdner Kleinwort believes that any potential acquirer” would need to consider the huge generic risks to the pipeline…Any acquisition valuation has to consider the significant downside.”

Source: OutsourcingPharma