AstraZeneca Mulling Sale of Device Unit

Back to the basics.

That mantra is gaining popularity these days at pharmaceutical conglomerate AstraZeneca Plc, where disappointing third-quarter earnings and a gloomy long-term sales outlook has prompted bigwigs to consider selling the firm’s medical device and dental implant business unit for $2 billion.

According to Bloomberg News, the London, England-based company has recruited JPMorgan Chase & Co. to help it find a buyer for Astra Tech AB, the Swedish unit that manufactures devices and implants used in urology, surgery and odontology. Bloomberg cited three sources with knowledge of AstraZeneca’s discussions with JPMorgan, but the trio declined to identify themselves to the news organization, citing privacy issues. JPMorgan reportedly has contacted prospective buyers in the last several days and plans to approach other device makers and private equity firms, Bloomberg reported.

In addition to its Astra Tech unit, AstraZeneca also is considering selling Aptium Oncology, a chain of outpatient cancer centers it owns in the United States, one of Bloomberg’s sources claims. The company currently is assessing market interest in the division, which most likely would sell for about $500 million or less, the source told Bloomberg.

Though both business units performed well last year, Astra Tech and Aptium Oncology represent a tiny fraction of overall sales for the company. In 2009, for example, Astra Tech’s U.S. sales rose 4 percent to $83 million; while such an increase is impressive considering the rough economic climate of the last 18 months, it pales by comparison to the overall $33 million in revenue AstraZeneca reported last year.

What is more alarming to executives, however—and most likely is prompting them to consider selling the two business units—is the sales decline the company is facing over the next four years as its patent protection expires on two of its most profitable drugs, Nexium and Seroquel. Managers estimate that AstraZeneca must generate between $4 billion and $6 billion during that time to meet its sales target range of $28 billion to $34 billion.

The company’s third-quarter earnings report did little to allay executives’ anxiety over long-term revenue growth. U.S. revenue fell 13 percent, and operating profit dropped 10 percent to $3.2 billion. EPS (earnings per share) also took a nosedive, with core EPS declining 10 percent to $1.50 and reported EPS plummeting 26 percent to $1.08.

“It makes sense for them to divest non-core businesses—and [Astra Tech] is a non-core business—because they need to focus on their revenue line, on their pharma business,” Navid Malik, an analyst with Matrix Corporate Capital in London, told Bloomberg News. “This gives them an opportunity to return cash to investors through an enhanced buyback or higher dividends.”

Spokespeople for both AstraZeneca and JPMorgan Chase declined to comment on the Astra Tech sale rumor. Bloomberg News speculated that York, Pa.-based dental supply company Dentsply International Inc. might be interested in purchasing AstraZeneca’s dental unit, but spokeswoman Michele Mummert said she had no knowledge of Dentsply’s interest in the business.

Astra Tech employs 2,200 people and owns subsidiaries in 16 markets. In 2007, AstraZeneca bought U.S.-based Atlantis Components Inc. for $71 million, which provided Astra Tech with access to computer-aided design technology for dental implant abutments.