Zacks_Analysts' Blog : AstraZeneca Remains Neutral - Analyst Blog

We are maintaining our Neutral stance on AstraZeneca (AZN) with a target price of $48.00.

AstraZeneca is one of the largest biopharmaceutical companies in the world and recorded 2010 sales of approximately $33.3 billion. The company focuses on several therapeutic areas including gastrointestinal, cardiovascular, respiratory and inflammation, oncology, neuroscience and infection.

In October 2011, AstraZeneca reported third quarter 2011 core adjusted earnings of $1.71 per American Depositary Share (ADS), a few cents above the Zacks Consensus Estimate of $1.68 and well above the year-ago earnings of $1.50. Earnings were driven by share repurchases, lower tax rate and net finance expense.

The cardio segment is the highest revenue grosser at AstraZeneca, accounting for 28.2% of total revenues in 2010. Lead product, Crestor, has had a solid track record and has gained market share ever since its launch in 2003. However, we note that Crestor faces stiff competition from Pfizer’s (PFE) Lipitor and Merck’s (MRK) Zocor/Vytorin. The entry of generic versions of Lipitor in late 2011, can affect Crestor’s market share. While we do not expect current Crestor users to switch to generic versions of Lipitor, new patients may opt for the latter as it comes across as a less expensive option.

Meanwhile, several products in AstraZeneca’s portfolio are already facing or are likely to face generic competition. In fact, generic competition was primarily responsible for the 7% reduction in the company’s US revenues in 2010.

To mitigate the loss of revenues in the US, the company is focusing on the emerging markets, which represent significant commercial potential.

Additionally, the company has initiated a restructuring program aimed at cutting costs to drive the bottom line. The company’s share repurchase program should also boost the bottom line.

Even though we are encouraged by AstraZeneca’s strong cardiovascular franchise, focus on the high-potential emerging markets and efforts to drive the bottom line; we remain bothered about the weak late-stage pipeline and recent pipeline setbacks. We therefore, remain Neutral on the stock, which carries a Zacks #3 Rank (short-term Hold rating).