AstraZeneca, Shionogi Jump After Winning Crestor Patent Ruling

AstraZeneca Plc and Shionogi & Co. shares rose after the companies won a U.S. court ruling that will help prevent sales of cheaper copies of their Crestor cholesterol pill until 2016.

AstraZeneca climbed the most in 19 months in London trading and Shionogi, based in Osaka, Japan, gained the most in almost 20 months. U.S. District Judge Joseph J. Farnan Jr. ruled yesterday that a patent on the active ingredient in Crestor is valid and enforceable.

Crestor generated $4.5 billion last year for London-based AstraZeneca, which sells the drug outside Japan, and brought $565 million in royalty revenue to Shionogi in the year ended March 31, or 18 percent of sales. The dispute had been capping Shionogi shares, said Mayo Mita, an analyst at Morgan Stanley in Tokyo. AstraZeneca now may begin a "significant" stock buyback, said JPMorgan Chase & Co.'s Alexandra Hauber.

"A big uncertainty is lifted," said Mita, who rates Shionogi "overweight."

AstraZeneca rose 256.5 pence, or 8.7 percent, to 3,203.5 pence at 8:05 a.m. in London. The stock gained as much as 9.1 percent, the biggest intraday advance since Nov. 24, 2008. Shionogi climbed 124 yen, or 7.2 percent, to close at 1,843 yen on the Tokyo Stock Exchange, the most since Nov. 10, 2008. The stock has fallen 8.3 percent this year.

AstraZeneca, which repurchased more than $4.1 billion of shares in 2006 and 2007, halted buybacks in 2008 to conserve cash during the financial crisis, Hauber wrote in a report to clients. The London-based company resumed buybacks this year of as much as $1 billion. Now, the company may resume repurchases of more than $4 billion a year, she said.

'Overhang' Removed

"With the Crestor overhang and risk of significant downside removed, investment focus should shift to the potential upside from a buyback program," Hauber wrote. A $4 billion annual buyback would push earnings per share up by 20 percent by 2014, she wrote. The company may signal an increased buyback when it announces earnings on July 29, wrote Hauber, who raised AstraZeneca shares to "neutral" from "underweight."

Shionogi shares may reach 2,200 yen in the next 12 months, said Fumiyoshi Sakai, an analyst at Credit Suisse Group AG, in a note to clients.

The judge in Wilmington, Delaware, rejected challenges by companies including Teva Pharmaceutical Industries Ltd. that sought to market copies of the medicine.

"The legal victory will now provide some upside," said Sakai, who rates Shionogi "outperform." "It ensures that Shionogi can continue to receive substantial royalty payments from AstraZeneca until September 2016, when the substance patent expires."

Crestor was AstraZeneca's third-biggest product by sales in 2009. The company also faces a review by a U.S. Food and Drug Administration advisory panel on July 28 of its experimental anti-clotting treatment Brilinta that "may cause further volatility," Hauber wrote.

Source:www.businessweek.com