AstraZeneca could be on the acquisition trail, analysts believe, with US group Forest Laboratories tipped as a prime target.
Liberum Capital moved its recommendation on Astra from sell to buy, based partly on the belief that the chances of the company doing a deal have increased. It pointed to a number of factors: a poor drug pipeline and the need to buy earnings, impending patent expiries from 2014, a new chairman with an acquisition background joining in September (ex-Volvo and Ericsson executive Leif Johansson) and the company returning to a net cash position in the last 18 months. Analysts Naresh Chouhan and Roger Franklin said:We believe that an accretive deal that allows for continual cash returns would be received positively by the market and have both the effect of higher earnings and a potential re-rating. Given the lack of pipeline delivery and a 5% fall in earnings between 2012-17, on our numbers, we believe that a deal is more likely than at anytime in the last few years.
They doubted a mega-merger was on the cards, since cash returns would be a key part of the strategy, and picked out Forest - which sells branded forms of ethical drugs mostly on prescription - as a possible $10bn target:We identify Forest Labs as a deal that is a good strategic fit but small enough to allow Astra to meet consensus cash return expectations. We acknowledge there could be other deals that are done but argue that a deal similar to Forest would likely deliver upside to the shares.
They suggested an all cash, debt funded deal at a premium to Forest's current $9bn market capitalisation, with completion early next year:Forest's outlook is dominated by two large patent expiries partly offset by five meaningful growth products and potential new launches. The net effect is that product sales are forecast to fall 3% per annum and adjusted earnings per share by 8% per annum to 2017.
However, we assume the deal closes on 1 January 2013 once the majority of the impact of the Lexapro patent expiry [this month] has been annualised.
Separately, another sign of Astra's troubles has come with news that the UK High Court has found a patent on its extended-release version of antipsychotic treatment Seroquel to be invalid. The ruling followed a challenge by a number of rivals including Teva and Novartis, and comes as the drug faces growing generic competition in the US and Europe this month. Astra said it was disappointed but remained committed to defending its intellectual property surrounding Seroquel.
Thursday, March 22, 2012
AstraZeneca tipped to buy US group Forest, as it loses Seroquel patent case | Business | guardian.co.uk