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Is AstraZeneca a Buy After Pfizer Breakup? 3 Pros, 3 Cons

Failed bid could be a boon if pipeline pans out

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AZN Stock Cons

Pfizer’s offer will be hard to beat: What Pfizer characterized as its “final offer” for AstraZeneca would have given AZN shareholders more than $92 per share at a total price of about $119 billion. That breaks down to 1.75 shares of the combined company and £24.75 per share in cash for a total of £55 — a premium of 44% over the price AZN stock was trading at before word of Pfizer’s bid went public. AstraZeneca was looking for an offer of £59 a share. Technically, PFE has until May 26 to submit another offer, but that’s unlikely since the offer on the table was pushing the envelope of shareholder value for PFE.

Patent cliff challenges in 2014: The so-called “patent cliff” — expiration of pharmaceutical manufacturers’ exclusive rights to produce their blockbuster drugs — will dampen AZN’s earnings over the next couple of years. Beginning this year, AZN will lose protection on key products like the acid reflux pill Nexium, with sales of $4 billion a year, and the asthma drug Symbicort.

Approval of new drugs is uncertain: Failure of experimental drugs in the late-stage trial phase are fairly common, which presents significant risk to AZN. Case in point: Last week, GlaxoSmithKline’s (GSK) new heart drug darapladib failed another Phase III clinical trial. The drug, which was hailed as a revolutionary tool in reducing plaque in arteries, has failed two late-stage trials, and GSK might be considering writing off darapladib, according to FierceBiotech. AstraZeneca has been no stranger to pipeline disasters in recent years, most notably the failure of its oral anticoagulant Ximelagatran, which AZN withdrew after the FDA failed to approve the drug.

AZN Stock Bottom Line

AstraZeneca is in a tough, bleeding-edge business and faces near-term pressures as drug patent expirations negatively impact sales. AZN’s drug pipeline (particularly its oncology products) could revolutionize the battle against cancer. AZN expects the new cancer drugs — as well as strong portfolios in cardiovascular disease and treatment for serious respiratory problems — to deliver as much as $45 billion in annual revenue nine years from now.

AZN stock is down 8% this week on the news of the failed deal with Pfizer. Look for AZN to slide further over the next few weeks, providing an attractive entry point for new investors.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.  

Article printed from InvestorPlace Media,

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