AstraZeneca finds a partner to plug its pipeline

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BMS deal could set a precedent for others

AstraZeneca may have its roots in drug development and its headquarters in London, but Thursdays’s partnership with Bristol Myers Squibb for two experimental diabetes medicines bore all the hallmarks of the marketing background of its US chief executive.

Investors are not the only ones nervous about the holes in the UK company’s late-stage product pipeline. Its substantial primary-care sales force faces the prospect of being cut back unless it gets some new “blockbusters” to complement those coming off patent in the years ahead.

That makes for an elegant match. BMS, which has little desire or capacity to handle primary-care diabetes drugs with its more specialist sales force, needs marketing help.

Given the enormous and expanding market for diabetes treatments, and the scope for combining diabetes drugs with others for obesity and cardio-vascular problems, the partnership could still offer scope for some clever future marketing with AstraZeneca’s existing products.

Furthermore, with just $100m (£51.6m) in upfront payments from the UK company to BMS, the terms look relatively conservative for a late-stage deal. Further payments are heavily conditional on success.

AstraZeneca undoubtedly has expertise in late-stage drug development that it can bring to the BMS partnership. But the troubles in its own pipeline – including the abandonment of its own diabetes drug Galida last year – above all create a gap in its portfolio that it is desperate to fill. AGI-1067, its atherosclerosis drug that was until now the only remaining one in final Phase-3 development, looks touch-and-go. Add to that AstraZeneca’s strong cash position and its clear appetite for more such deals, and expect a queue of other companies seeking partnerships in the months ahead.

Aviva deal fever cools

As news of the coming change at the top of Aviva sinks in, so does the feeling that it will damp the possibility of deals involving the UK’s biggest insurer.

Richard Harvey, who will step down as chief executive in July, was the driving force behind the abortive £17bn approach to Prudential last year. Now 56, he signalled to his chairman a year ago, that he might leave before the normal retirement age of 60, but he wanted to be chief executive of the combined group for at least the period of integration. That would have left Mark Tucker of the Pru waiting in the cold for his turn at the top executive job.

If there was another chance to persuade Prudential of the merits of merging, this time with the chief executive role available, it was closed off on Wednesday. Not only did the announcement start a handover period – an unpropitious time to make the case for taking over a large rival – Andrew Moss, Aviva’s finance director and chief executive-elect, is more cautious than his boss. He would argue, quite reasonably, that the markets turned up their nose at the Pru deal and that Aviva should now concentrate on organic expansion.

What about the alternative in which a big competitor such as France’s Axa or Italy’s Generali proposes a deal while Mr Harvey is dreaming of his African sabbatical and before Mr Moss is formally installed? That, while still a possibility, is no easier to envisage today than it was on Tuesday. The UK insurer is valued at some £21bn. The fact that Aviva’s chief executive is passing the baton does not make the company any simpler to digest.

Day late, penny short

Not since 1582, when Pope Gregory XIII reformed the Julian system to restore order to the Christian calendar has there been such debate over missing days of the year.

Yesterday, Alliance Boots suggested analysts should add 0.7 percentage points back to its anaemic-looking UK retail sales growth for the third quarter because (under what will surely come to be known as the Bootsian Calendar) the group had lost a Saturday and gained a Sunday in the period, compared with 2005. Sales on Sunday are only a fraction of sales on a Saturday, hence the shortfall. Pope Gregory would surely have applauded, had he been on yesterday’s conference call, but lay analysts and investors could see only the dark side.

The lack of sympathy saw Alliance Boots’ stock marked down by 2.7 per cent yesterday following a strong run over the past three to four months. The group claimed that on the same basis as other retailers – and adjusting for changes to the reimbursement rate for generic medicines – like-for-like growth was not the 1.5 per cent reported, half consensus forecasts, but a more respectable 3.4 per cent.

Papal discussions about angels and pins come to mind. The reality is that investors have concerns about the pressure from supermarkets and have also started to worry about progress in extracting the benefits of last year’s merger. It will take a few Leap Saturdays to dispel the growing caution.


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