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AstraZeneca sues the feds

by Ben Fidler | Published March 14, 2012 at 12:00 PM

Days after the U.S. Food and Drug Administration refused to delay the entry of generic versions of antidepressant Seroquel into the market, AstraZeneca plc has fought back in a bid to hold on to one of its largest revenue producers for as long as possible.

The British pharma giant, facing a thin late-stage pipeline and significant patent expirations over the next few years, said Tuesday that it has sued the FDA in the U.S. District Court for the District of Columbia to overturn the agency's decision on Seroquel.

AstraZeneca wants an injunction barring the FDA from granting final marketing approval for generic Seroquel through either Dec. 2 or when a federal court has a chance to review the FDA's action.

Seroquel is one of AstraZeneca's top-selling drugs. The antidepressant brought in $5.8 billion of its $33.59 billion in revenue in 2011, second only to cholesterol treatment Crestor ($6.62 billion).

The product is set to lose patent protection on March 26, and thus will significantly damage AstraZeneca's revenue and earnings. Indeed, the company is predicting a roughly 10% hit in revenue in 2012, largely due to patent expirations. AstraZeneca went on the offensive in September, filing a citizen petition with the FDA asking the agency to withhold approval of generics that didn't contain the same warning language the agency had required it to include on the labeling for its two forms of Seroquel (one an instant-release tablet, Seroquel IR; and the other an extended-release form, Seroquel XR). The warning language is protected by marketing exclusivity periods that expire on Dec. 2, which could theoretically give AstraZeneca a further nine months of exclusivity on the drug.

The FDA rejected AstraZeneca's request on March 7.

Seroquel is just one of several key AstraZeneca drugs set to lose patent protection over the next five years. Atacand, a high blood pressure medication that garnered $1.45 billion in 2011 sales, will hit the patent cliff this year. Asthma medication Symbicort, with $3.15 billion in sales, may lose exclusivity in Europe in 2013 or 2014. And cash cows Crestor, as well as gastroesophageal reflux disease pill Nexium, with its nearly $4.5 billion in sales, will face generic competition in 2014 and 2016, respectively.

With such a large portion of its revenue base facing potential erosion and scant late-stage blockbuster prospects, AstraZeneca has made a number of moves since first announcing a major restructuring plan in 2007, such as axing thousands of jobs, outsourcing manufacturing and instituting billions in dividends and share buybacks.

But M&A may ultimately be its next play. Martin Mackay, the company's head of research and development, indicated in a published report that the company has been talking to several companies and aims to do some deals in 2012.

AllianceBernstein LP analyst Tim Anderson echoed such sentiments in a recent research note, arguing that the "status quo ... may not be sustainable."

"It seems that something has to give at AstraZeneca, given its troubling future financial outlook," Anderson wrote. "AstraZeneca has generally said it would forego future acquisitions of any meaningful size and it instead would continue to return excess cash. ... But is this about to change?"

Anderson believes that should AstraZeneca go the M&A route -- a more likely decision than making further spending cuts -- the company is likely to pursue midlevel acquisitions, worth $10 billion or less. Anderson listed Amylin Pharmaceuticals Inc. as a potential takeout target, estimating a potential $4.5 billion price tag. Amylin has diabetes drug Byetta ($518 million in sales in 2011) and extended-release formulation Bydureon already on the market, while AstraZeneca already has a presence in diabetes through a collaboration with Bristol-Myers Squibb Co. on two such drugs.

AstraZeneca hasn't made a substantial buyout since paying $15.2 billion for biotech MedImmune Inc. in 2007, a deal that Anderson noted has been widely panned due to the price AstraZeneca paid relative to what it received.

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