AstraZeneca forced to defend cancer drug deal with Celgene

AstraZeneca will receive a $450m windfall from Celgene as part of a partnership to develop cancer drugs together - but the UK drugmaker was forced to defend the deal against claims it was trading future growth for short-term revenues.

Pascal Soriot, chief executive, said the alliance would help expand one of AstraZeneca's most promising new drugs beyond solid tumours into the blood cancers in which Celgene of the US specialises.

Some analysts and investors questioned a move that would see AstraZeneca forfeiting about half of any sales from the drug, known as MEDI4736, in blood cancers.

The Celgene partnership is the latest "externalisation" deal in which AstraZeneca receives upfront payments from partners while sharing long-term gains. "This raises concern that the company might be trading in long-term opportunities to protect short-term earnings," said Alistair Campbell, analyst at Berenberg.

Shares in AstraZeneca were down 2 per cent at £47.21 on Friday afternoon - well below the £55 per share takeover offer from Pfizer rejected almost a year ago.

Mr Soriot insisted criticism of his partnership strategy was misplaced. He said such deals were crucial to getting drugs to market as fast as possible, particularly in areas such as blood cancer where AstraZeneca had little expertise.

"We are going to create value together that doesn't exist now and will be much bigger than we would have created by ourselves," he said. "We get 50 per cent of a much bigger value proposition."

Increasing revenue from partnerships is helping AstraZeneca cushion a drop in sales from older drugs as they lose patent protection - most recently its Nexium heartburn pill, which declined 31 per cent in the first quarter.

Total sales fell 6 per cent during the period to $6.06bn, but when adjusted for currency fluctuations - mainly appreciation of the US dollar - the figure was up 1 per cent from last year and beat analysts' expectations.

Strong growth in emerging markets, especially China, helped keep sales afloat, but Mr Soriot reiterated prior guidance for full-year revenues to fall by a mid-single-digit percentage on a constant-currency basis, while earnings would fall in the low-single-digits.

First quarter operating profits came in just ahead of market expectations at $1.8bn, or $1.08 a share, down 8 per cent from last year, or 4 per cent when adjusted for currency movements.

Mr Soriot said the group was on track to return to growth by 2017 and reported "enormous progress" towards delivering new drugs - especially in a new category called cancer immunotherapy, which harnesses the immune system to fight tumours.

Of the 72 trials AstraZeneca has under way in cancer, 31 are in immuno-oncology, Mr Soriot said, expressing confidence that the group could keep pace with leadersMerck and Bristol-Myers Squibb in what has become the hottest area of drug development. "It is a marathon we are running, not a 100m race. Who is winning in the first 100m will not tell you very much."

Andrew Baum, analyst at Citigroup, said AstraZeneca was doing a good job of maintaining its near-term earnings and dividends commitments while "intelligently focusing its pipeline investment" for the long term. He said the Celgene deal made sense.

AstraZeneca also announced an agreement to work on combination therapies involving MEDI4736 with Innate Pharma of France. Similar alliances have been struck in recent days with Juno of the US and Immunocore of the UK, highlighting the collaborative approach favoured by Mr Soriot.

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