AstraZeneca upbeat on margins as pipeline rebuilt

Europe's third biggest drugmaker said it had the potential for sales growth over the next five years in line with projected market growth, despite generic competition to a number of its medicines.

Coupled with further productivity gains, that should boost operating margins and generate substantial cashflow for reinvestment in the business and for returning to shareholders.

"We know what it will take to continue to deliver a strong performance over the next five years. While new products will play a role, many of the ingredients for continuing our momentum can be found in our product range," Chief Executive David Brennan said.

"The delivery of earnings growth ahead of sales is within our reach," he told analysts, after presenting a snapshot of the group's product portfolio at its Annual Business Review day.

Industry analysts said there were no major surprises, with most new drugs continuing on track.

Shares in the group, which trade on around 15 times this year's forecast earnings against a European sector average of 16.5, were 2.3 percent lower at 28.48 pounds by 0840 GMT, in line with a sharply weaker overall market.

AstraZeneca is struggling to persuade investors of the promise of its new-drug pipeline following a number of setbacks to late-stage products which have damaged long-term growth prospects.

The latest such blow was a decision last month to scrap development of diabetes drug Galida, once touted as a potential blockbuster.

MIND THE GAP

Brennan, who took over as CEO in January, said he recognised the danger of a product gap but said his strategy was to take every action to make sure it did not happen, with strengthening the flow of new drugs his top priority.

He has already moved to shore up the portfolio with a series of acquisitions, including the planned purchase of Cambridge Antibody Technology Group Plc in a deal valuing the biotech firm at 702 million pounds.

AstraZeneca would continue to aggressively pursue promising products and technologies from external sources but Brennan also stressed the untapped potential of existing products - notably Crestor, Seroquel and Symbicort.

After a slow start, cholesterol fighter Crestor is picking up market share, following a finding earlier this year that it reverses the build-up of plaque in clogged arteries, which can lead to heart attacks and strokes.

Seroquel for schizophrenia is being developed for further indications and AstraZeneca also has high hopes for a once-daily version of the product, Seroquel SR, which will be filed for regulatory approval in the United States in the third quarter.

Symbicort for asthma, meanwhile, is currently being reviewed by the U.S. Food Drug Administration, although AstraZeneca repeated an earlier warning that it did not expect a green light from the agency first time round.

Looking ahead, drug development head John Patterson said the group had increased the number of medicines in final Phase III clinical trials to five from just two 18 months ago.

That is still a modest line-up by industry standards, however, and analysts say products such as stroke drug NXY-059, cardiovascular drug AGI-1067, Plavix rival AZD6140 and new cancer treatments remain high-risk.

AstraZeneca hopes to file both NXY-059 and AGI-1067 for regulatory approval in the first half of 2007, if trials are positive, while a pivotal Phase III for oral antithrombotic AZD6140 is expected to start in the second half of this year.

Pivotal data from lung cancer drug Zactima is expected in the middle of 2008 while data on AZD2171 - a new kind of drug to stop blood-vessel growth that fuels tumour cells - could be available a year later.