AstraZeneca dragged down by heart drug fears

The drug maker AstraZeneca delivered a strong rise in annual profits yesterday, but the risk of cheap generic competition to its top-selling heart treatment Toprol XL threatens to hold back earnings growth this year. The shares were the biggest casualty among blue chips, dropping 3.5 per cent to 2,638p.

Europe's third-largest pharmaceutical company posted a 10 per cent rise in sales to $24bn (£13bn) last year. Earnings per share jumped 44 per cent to $2.91, well within the company's target range and analysts' forecasts. Pre-tax profits were up 38 per cent to $6.7bn.

David Brennan, the chief executive who took over from Sir Tom McKillop at the start of the year, said he expected 2006 earnings per share to climb to $3.40-$3.60, driven by sales of the anti-ulcer drug Nexium and the schizophrenia treatment Seroquel. But the Anglo-Swedish giant admitted 45 cents of the estimate hinged on Toprol, which recently lost patent protection in the US and could face cut-price competition from copycat manufacturers. Mr Brennan reiterated his determination to appeal against the judgment and noted that none of the generic drug makers had won approval from the US Food and Drug Administration to make copycat versions of the hypertension drug.

Analysts said the potential impact on earnings growth of 45 cents was worse than expected. Navid Malik, at Collins Stewart, said: "If you take out the maximum for Toprol XL, you've got rid of most of the growth." AstraZeneca could also face patent challenges to Nexium and Seroquel. Some analysts were disappointed by slow progress on a successor to the anti-clot pill Exanta and delays to the filing of the diabetes drug Galida.

The news was a further setback to a company that has a threadbare pipeline of experimental new drugs. Spending on research and development fell 4 per cent last year but is set to show a "healthy increase" this year, Mr Brennan said.

The chief executive is working hard to bolster the portfolio of new drugs after two product failures - Exanta and the cancer drug Iressa in 2004. In December, AstraZeneca signed four deals worth up to $1.6bn to license new drugs and bought the biotech company KuDOS Pharmaceuticals, which is developing cancer drugs.

Mr Brennan reiterated he would make it a priority to license products or acquire companies to replenish the drugs pipeline. But he said: "We are not looking for mergers. Our acquisition strategy is to look at technologies, products and companies that can bring something of value to us."

The group is pushing into emerging markets such as China and Russia and said its business outside the US could grow to 60 per cent of overall sales, from about half now.