Amarin Corporation plc (ADR) (AMRN): AstraZeneca plc (ADR) (AZN) is Headed in the Right Direction

In my last report on AstraZeneca plc (ADR) (NYSE:AZN), I focused on the patent expiry of Seroquel IR and the resultant decline in company sales. According to recent news, the troubles of AstraZeneca are still not over and the company is cutting approximately 2,300 sales and admin jobs. This is part of a large plan put forward by the new CEO to jump start falling sales.

Strategy shift

The new CEO, Pascal Soriot, is overhauling the strategic direction of the company. AstraZeneca will reduce its focus on neuroscience and anti-infectives, including antibiotics by reducing research and development expenditure in these fields. The company will instead limit its focus on three key therapy areas of cardiovascular, cancer, and metabolism disorders. Late last year, Soriot also cut the share buyback program of AstraZeneca plc (ADR) (NYSE:AZN) to focus funds on R&D.

The company has streamlined its Research and Development, which can be a long-term catalyst for the stock. According to company disclosures, all the R&D at AstraZeneca will be consolidated into three centers of excellence to achieve the following targets:

Improved collaboration

Reduced complexity

Accelerated decision-making and, ultimately, improved R&D output

This overhaul has already resulted in the loss of 1,600 jobs and will put more strain on its cash position. According to company disclosures, this would amount to a onetime expense of $2.3 billion in terms of restructuring charges, but would benefit the company in the long run. The management is expecting the program to result in annual savings of $800 million by 2016.

Pipeline

The pipeline of AstraZeneca plc (ADR) (NYSE:AZN) holds the key to future of the company. The company has already lost its leading drug candidate, Seroquel IR, and more patents are on their way out. AstraZeneca’s top selling drug Nexium, which treats stomach acid, will lose its patent protection in 2014. According to Reuters, the cholesterol pill Crestor will also lose its U.S. patent protection in 2016.

The company has an elaborate pipeline, a detailed list can be found here. However, according to sell side, only 11 to 12 assets will readout in 2013/2014. The commercialization is still a pretty long way away from candidates which enter Phase III trials. If successful, these candidates will be able to reach the market by 2017.

AstraZeneca’s strongest candidates are in oncology and respiratory segments. Olaparib and Selumetinib are the leading oncology candidates. According to company disclosures, these drugs have a sales potential of less than a billion dollars.