by Barry Cohen | September 11, 2011 6:30 am
AstraZeneca (NYSE:AZN) rolled the dice when it pitted its cholesterol drug Crestor against the Pfizer (NYSE:PFE) blockbuster Lipitor in a head-to-head study. When the study results were revealed Sept. 2, it looked as though Astra rolled snake eyes. Investors responded accordingly to the disappointing news, taking the company’s shares down 3.5% to $45.08. Now the London-based member of Big Pharma has to find a way to limit the damage.
Astra took a gamble when it launched the study, called Saturn, several years ago. Drug makers shy away from direct comparisons of their drug with a competitor, but Astra thought Crestor, which has a strong effect on bad cholesterol, had a good chance of topping Lipitor at dealing with arterial plaque. Unfortunately, the company was wrong — sort of.
Study researchers measured the amount of plaque in two different ways: by total volume and percentage volume. Crestor reduced the total volume of fatty deposits in the artery more than Lipitor, but on a percentage basis — the study’s main measure of effectiveness — the result wasn’t statistically meaningful. Full results of the study will be presented at the annual meeting of the American Heart Association on Nov. 15.
If Crestor had demonstrated superiority, the data would have given Astra a big marketing boost in the cholesterol wars. That edge would have become even more valuable later this year when Lipitor loses patent protection. That’s because the company could have told doctors its drug was better for patients than the Lipitor copycats that soon will be flooding the market. Now it can’t.
The bigger fear for Astra now is that the cheap Lipitor knockoffs will start eating away at Crestor sales, which reached $5.6 billion last year. After all, if Crestor isn’t as good as Lipitor, why shouldn’t doctors prescribe the cheaper generic versions instead of the pricier brand-name Crestor to budget-conscious patients?
Some of the heavy hitters on Wall Street think that’s exactly what will happen. Matrix’s Navid Malik downgraded Astra to “reduce” and said he’s expecting Crestor sales to suffer. And Sanford Bernstein’s Tim Anderson lowered his 2015 sales estimate for Crestor by 5% to $6.5 billion. That compares with the $7 billion average estimate of six analysts surveyed by Bloomberg.
An article on the Smart Money website also suggested selling Astra because of expected pricing pressures on Crestor. One optimistic voice in the wilderness is MF Global’s Justin Smith, who thinks Crestor will hold its own against generic Lipitor because of its efficacy in hard-to-treat patients.
Those investors who value Smith’s opinion and think Astra still is a decent buy have some other reasons to like the stock. For one, they wouldn’t be buying at the high; Astra shares are down more than 2% year to date. And based on estimated earnings for 2012, the shares are trading at a more than reasonable P/E of just more than 7. Those seeking income will like the company’s annual dividend of $1.70, which gives it a sweet yield of 3.7%.
Barry Cohen is long PFE.
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