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Industry ananlysis: AstraZeneca should consider merger of equals with US group AbbVie

Posted on 20 June 2012

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Industry analysis suggest that AstraZeneca could consider a merger of equal deal with AbbVie which  would give $4bn of synergies, but also suggests five point plan for future growth.

The company is struggling to beef up its pipeline of products as patents on key drugs, notably Crestor in 2016, expire. Analysts at Liberum Capital say current expectations suggest the market believes Astra, up 39p at £27.22, will continue to see a decline in growth, but they have come up with some ideas for boosting the company's future prospects. Their ideal solution would be a merger of equals, with the best potential partner being US pharmaceuticals group AbbVie - which is due to be spun off from parent company Abbott. If not AbbVie, Eli Lilly would be an alternative. Liberum analyst Naresh Chouhan said:

Although perhaps difficult to engineer, our best case scenario for Astra to get themselves out of the position they are in would be to engage in a merger of equals with AbbVie. Without the need to pay a premium, we believe the $4bn or so of synergies would create $50bn of value and the chief executive void at Astra will make it easier to agree on a deal.

If such a merger cannot be achieved, Liberum has a five point plan for turning Astra round.

First Astra could seek to acquire speciality pharmaceuticals groups such as Forest Laboratories, which is small enough to be affordable and leave room for further deals. Liberum said Astra should also look at the likes of Warner Chilcott or Amylin.

Secondly it should reorganise its research and development operations, relocating them to Cambridge in the US, Cambridge in the UK or the Bay Area in California, the three main centres for such activities. Liberum said:

43% of Astra's scientists are located in the north west of England. We do not believe this is the hotbed of cutting-edge science and top scientists are unlikely to want to relocate there to carry out their work when the best science and scientists are in either of the two 'Cambridge's'.

Astra should also buy in existing pharmaceutical products which have already been launched, to use spare manufacturing capacity.

On the financial front it should announce it will maintain the 2011 dividend until 2016, to keep a floor under the share price.

And it should change its remuneration policy to emphasise longer term management incentives:

We believe that the basic strategy must be to have a business to manage post-Crestor. This entails having products to launch and commercialise, a growing portfolio of existing products and an R&D unit that is delivering products on a continual basis. To this end we believe the remuneration policy should be designed to incentivise management to run the business towards this goal. At present we believe the remuneration policy does not incentivise management to think long-term.

Read the full article at the Guardian



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