Why 2016 Is A Make Or Break Year For AstraZeneca plc And Tern PLC

2016 is going to be a big year for AstraZeneca (LON: AZN) and whatever happens to the rest of the market this year, Astra will exit the year a different company. 

You see this is the year Astra’s been dreading for some time. The company’s most successful drug, and one of the most successful drugs of all time, Crestor is set to lose patent protection, putting $6.4bn of revenue at risk. Another of Astra’s treatments, Seroquel XR is also set to lose patent protection this year putting a further $900m of annual revenue at risk. Past trends have shown that once drugs lose patent protection, generic replacements can siphon off up to 90% of sales over a very short period, which is clearly a significant risk for Astra. 

And the pain doesn’t stop this year. Around 33% of the $24.5bn in revenue Astra is expected to report for 2015 will come from three drugs, for which Astra is set to lose the exclusive manufacturing rights by 2017 at the latest — that includes Crestor and Seroquel XR. 

Time will tell

To fill the revenue hole left by these drugs, Astra’s management is pinning its hopes on the group’s best-in-class pipeline of opportunities, new drugs such as Brilinta, an anti-clotting drug, Durvalumab, and AZD9291. 

City analysts believe that these new blockbuster treatments will produce sales for the group of around $4bn per annum by 2018. Whether or not sales of these new drugs will replace the lost revenue from older treatments remains to be seen. However, sales figures this year should provide some insight as to how quickly generic competitors will siphon off Astra’s sales. If generics grab market share faster than anticipated, Astra may struggle to hit management’s sales target of $45bn by 2023. 

First sales

The next 12 months are also important for Tern (LSE: TERN), which has spent the last two years putting in place the foundations for growth. 

As Tern revealed today, the company’s net loss for the year ended 31 December 2015 trebled as admin costs mounted. Still, revenue for the period increased 290% and the group’s net asset value almost doubled year-on-year. All in all, the company is moving in the right direction and during 2016 Tern’s most significant investment, Cryptosoft, should begin to launch its new products after a year of investment. 

Indeed, in today’s press release issued alongside Tern’s full-year 2015 results, management announced that Cryptosoft is in discussions with several global companies with regards to new contracts. The installation of an experienced VP of Global sales who started in November, along with a new VP of Sales in North America who is due to start in the first quarter of 2016, should only accelerate the adoption of Cryptosoft’s offering among potential customers.  

Overall, Cryptosoft is on track to record its first large sales this year, and when these contracts are signed, Tern will become a much more attractive investment opportunity.