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.

AstraZeneca plc (ADR) (NYSE:AZN)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.

Acquisitions

The company has so far avoided any major acquisitions. However, considering the fact that AstraZeneca plc (ADR) (NYSE:AZN)cannot expect any real revenue growth from its current product line or its pipeline candidates, acquisitions seem to be the only option. It is highly likely that the company will make a major move in the three areas where it plans to focus in the future.

There have been rumors that it might make a move for Shire PLC (ADR) (NASDAQ:SHPG) , a specialty biopharmaceutical company. The company has a market capitalization of approximately $17 billion, and its share price can soar if AstraZeneca shows interest. The stock is currently trading 14% below its 52-week high, and at approximately 20% discount to the mean sell side target price. Shire investors can expect anywhere from $120-$130 if any acquisition takes place.

If the company attempts an acquisition in its three key focus areas, Amarin Corporation plc (ADR) (NASDAQ:AMRN) and Oncolytics can be good potential targets. Amarin Corporation plc (ADR) (NASDAQ:AMRN) has recently commercialized its TGT reducing drug Vascepa. The drug can be a billion dollar plus product, and the company is available at pretty cheap valuations. Investors were expecting Amarin Corporation plc (ADR) (NASDAQ:AMRN) be acquired last summer, but it didn’t happened due to lack of an NCE decision.

Bottom line

AstraZeneca plc (ADR) (NYSE:AZN)’s management is definitely headed in the right direction, but there is still a long road ahead. I will recommend that investors wait for more solid pipeline information before making a move.

The article AstraZeneca is Headed in the Right Direction originally appeared on Fool.com and is written by Mohsin Saeed.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.