AstraZeneca to attempt explain Pfizer offer rejection

AstraZeneca will this week attempt to show investors why it rejected Pfizer's near-£70 billion takeover offer as its chief executive flies to the United States to showcase the British company's emerging range of cancer drugs.

As Pfizer prepares to raise the white flag over its failed offer for its smaller rival, Pascal Soriot, AstraZeneca's chief executive, is due in Chicago, where he will parade clinical data at the world's premier cancer conference, which starts on Friday. The annual meeting of the American Society of Clinical Oncology has taken on added importance for AstraZeneca since it rejected Pfizer's £55-per-share proposal, claiming it could produce more value for shareholders as a standalone company.

Pfizer is expected to issue a statement confirming its failure today ahead of a 5pm deadline for a deal to be struck under UK takeover rules. Pressure Pfizer's withdrawal will heap pressure on Mr Soriot to deliver his promised growth. The Frenchman warned during the takeover battle that the proposed acquisition could cost lives by delaying new cancer drugs.

Mr Soriot also announced an aggressive forecast for revenues to increase by three-quarters in the next decade, driven by a number of new treatments for asthma, diabetes and cancer.

“Pascal now has a monkey on his back to meet those targets,” one person close to AstraZeneca said.

Shares in the British drug company have lost more than 10 per cent of their value since Pfizer's latest offer was rebuffed a week ago, and several big shareholders have expressed frustration at the breakdown of talks. Shares in AstraZeneca closed 1.24 per cent higher on Friday at £43.28. Shift focus Some investors, including BlackRock, AstraZeneca's largest shareholder, have signalled their desire for fresh negotiations after a three-month cooling-off period expires in late August. However, people close to the UK company say it is keen to draw a line under takeover talk and shift focus back to its drugs pipeline.

Mr Soriot will be accompanied by AstraZeneca’s top scientists in Chicago to present data on two new lung cancer drugs – AZD9291 and MEDI4736 – that are at the heart of optimism over the company’s prospects.

AstraZeneca has rejected a “final” £69 billion takeover approach from Pfizer, the US drugmaker previously having ruled out any hostile bid.

The latter of these is part of a new class of treatments that use so-called anti-PD-L1 antibodies to target cancer cells in a way that some scientists think could prove as transformational as HIV drugs have been in tackling Aids.

Briggs Morrison, AstraZeneca’s chief medical officer, said the drugs had “the potential to redefine the way that cancer patients are treated”.

Andrew Baum, analyst at Citigroup, believes MEDI4736 could become a "best in class" product. However, success is far from guaranteed, with more clinical trials to come and intense competition from Bristol-Myers Squibb, Roche, Novartis and Merck.

Several analysts have said AstraZeneca’s revenue forecasts are too optimistic, pointing out that its target for peak annual sales of up to £6.5 billion from MEDI4736 are higher than even the most bullish analysts expect.

People close to the UK company insist the figures were not inflated to boost its defence against Pfizer.

"These numbers weren't plucked from thin air," says one of those people. "They were the numbers we already had internally. We wouldn't have made them public under normal circumstances and Pascal realises he's now on the hook for them." Questions The collapse of what would have been among the biggest deals in drug industry history also threatens to expose Pfizer chief executive Ian Read to searching questions over Pfizer's falling revenues and spluttering innovation pipeline.

For a while, Mr Read may be able to rely on large reserves of goodwill on Wall Street having increased Pfizer’s share price by about three-quarters since he took over in 2010 through aggressive cost cuts and restructuring. More than $50 billion in share buybacks and dividends in the past three years have further burnished his reputation as a champion of shareholder interests.

Deprived of the pipeline, cost synergies and tax advantages that the AstraZeneca deal would have brought, Mr Read will have to instead eke out growth from an existing business that generates more than half its revenues from low-margin drugs that have either lost patent protection or will do so soon. Sales have fallen 16 per cent in the past three years, with further declines projected by analysts until 2016.

Pfizer insists the gloom is overdone. – (Copyright The Financial Times Limited 2014)