AstraZeneca beats forecasts as new drug sales soar
AstraZeneca reported a strong fourth quarter, beating market expectations for revenues and earnings, with the drugs colossus guiding to another strong year ahead.
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Revenue came in at $6.4bn in the fourth quarter, up 11% and ahead of the average analyst forecast of $6.33bn. Product sales of $5.8bn were also ahead of consensus, boosted by 81% growth from new medicines, notably cancer drugs Tagrisso and Lynparza each doubling in sales, while immuno-oncology treatment Imfinzi saw sales rocket from $19m to $633m.
Core operating profit jumped 23% to $2.2bn, versus a consensus forecast of $2.4bn, and core earnings per share rising 22% to $1.58, compared to the expected $1.49.
For the full year, revenues of $22.1bn were down 2% as product sales increased 4% but there were lower revenues from the 'externalisation' of older drugs under licence to other companies. Operating profits fell 17% to $5.7bn due to a slight decline in margins and lower externalisation rates.
Directors confirmed a full year dividend of $2.80 and reaffirmed their commitment to the “progressive dividend policy”.
Chief executive Pascal Soriot said the fourth-quarter performance confirmed that AstraZeneca has returned to growth as new medicines grew 81%, with strength across oncology, respiratory and CRM (Cardiovascular, Renal & Metabolism), while demand the Emerging Markets demand grew 12% to account for a third of the group total for the year.
"2019 will be a year of focus on continued pipeline delivery and flawless commercial execution. The performance of our new medicines demonstrated the ability of our commercial teams to convert the pipeline into successful medicines," he said, while also pointing to recent organisational changes designed to further integrate research & development with commercial teams and accelerate decision-making and the launches of new medicines.
For 2019, guidance was given for product sales growth of a high single-digit percentage, with Tagrisso anticipated to be AstraZeneca's biggest-selling medicine and Imfinzi expected to further benefit from the impact of additional potential launches in markets outside the US.
Core operating profits are seen surging in the mid-teens as capital expenditure remains around the same and restructuring spending shrinks, delivering a core EPS of $3.50-3.70 or $3.43-3.63 in reported terms at current exchange rates. Consensus is currently the bottom-end of this range at $3.46.
Shares in the company jumped up almost 6% to 6,049p on Thursday morning.
Broker Liberum noted that oncology was very strong, with Tagrisso revenues 5% ahead of expectations, Lynparza 9% ahead and Imfinzi 7% ahead, but diabetes and respiratory "a bit more mixed".
It was also a "somewhat messy" fourth quarter P&L statement, with EPS beating expectations almost entirely due to one-off tax benefits arising from a reduction in the Dutch corporate income tax rate. However, 2019 earnings guidance from margin expansion should provide room for upgrades.
Core EBIT of $2.2bn for Q4 was 10% below consensus expectations, Liberum analyst Graham Doyle noted, almost entirely driven by SG&A spending coming in $210m higher than forecast as the company continues to support its new launches. "This is not much of a concern in our view given guidance for 2019 SG&A implies much more moderate growth."
Having seen sales return to growth in 2018, Doyle said 2019 "will finally see signs of operating leverage", with core operating profit growing ahead of sales.
Nicholas Hyett, analyst at Hargreaves Lansdown, said 2018 felt like the year Astra turned the corner, despite the "ugly" profits drop.
"In recent years Astra’s been slowly eating itself to keep the dividend going, while it waits for the pipeline to deliver. Selling off long term assets in exchange for cash today isn’t sustainable, and the labs were always in a race against the clock.
"CEO Pascal Soriot is now reaping the benefits of patience. The Oncology portfolio is going from strength to strength, and while the steady decline in Nexium sales remains a thorn in the group’s side it’s only going to become less important as time goes on.
"Even after recent successes the pipeline of new drugs looks rich. Meanwhile rolling more mature drugs into emerging markets also seems to delivering results, with sales to those markets accounting for 33% of the group total this year. Admittedly that’s being driven largely by growth in China, which has proven a volatile market of late, but a newly wealthy middle class is unlikely to see drugs as a luxury that can be picked up and dropped like an iPhone.”
Analyst Adam Barker at Shore Capital noted that in the pipeline update there was potential for trial refinements, following the detailed results of the Mystic trial, with assessment being made on the need to refine ongoing trials of Imfinzi and tremelimumab in non-small cell lung cancer. This would include the Neptune and Poseidon trials.