AstraZeneca Beats, Raises

AstraZeneca’s (AZN - Analyst Report) third quarter earnings came in at $1.68 per American Depositary Shares (ADS), well above the Zacks Consensus Estimate of $1.36 and $1.32 reported in the year-ago period. Revenues increased 10% at constant exchange rates (CER) to $8.2 billion compared to the same period last year.

The primary reasons for the increase in revenues were strong US sales of Toprol-XL benefiting from generic withdrawal, US sales of its H1N1 vaccine and robust growth in emerging markets.

AstraZeneca recorded strong sales across all geographies. Sales in North America, Emerging Markets and Established Markets increased (at CER) by 13%, 15% and 4%, respectively. The company expects double-digit revenue growth in Emerging Markets for the full year.

Among the product categories, apart from gastrointestinal and oncology, which recorded sales decline of 1% and 10% respectively, all other segments increased their revenues. AstraZeneca recorded more than 26% of its revenues during the quarter from cardiovascular drug sales.

This segment recorded the highest growth at 29%. Revenues for Respiratory and Inflammation, Neuroscience and Infection and others increased by 13%, 11% and 22%, respectively.

AstraZeneca’s gross margin improved to 84.9% from 81.3% in the year-ago period due to a reduction in cost of sales. Operating profit increased 29% to $3.6 billion due to improved gross margin and lower R&D expenditure, partially offset by higher SG&A expenses and less other income.

During the quarter, AstraZeneca received significant regulatory approval and entered into new licensing collaborations. These include:

·         Approval from the US Food and Drug Administration (FDA) for Onglyza (saxagliptin) to be used for the treatment of type 2 diabetes mellitus in adults. In addition, the drug received marketing authorization from the European Commission.
 
·         Approval from the US FDA for the H1N1 vaccine.
 
·         Collaboration agreement with Forest Laboratories (FRX - Analyst Report) for the development and commercialization of ceftaroline in all major markets other than the U.S., Canada and Japan. The drug is in a late stage of development for the treatment of complicated skin and skin structure infections (cSSSI) and community-acquired bacterial pneumonia (CABP). While Forest expects to file a New Drug Application (NDA) in the US by the end of 2009, AstraZeneca expects to file a Marketing Authorization Application (MAA) in Europe by the end of 2010.
 
·         An exclusive worldwide license agreement with Nektar Therapeutics (NKTR - Snapshot Report) for two drug candidates; NKTR-118, a late stage investigational product for the treatment of opioid-induced constipation and NKTR-119, an early stage compound intended to deliver products for the treatment of pain without constipation as its side effect.
 
·         AstraZeneca submitted a MAA for Brilinta and expects to submit the NDA by the year end.
 
While all these were positive developments, AstraZeneca has had its share of failures too. The company had to withdraw the regulatory submissions for the use of Zactima (vandetanib) 100mg in combination with chemotherapy in patients with advanced non-small cell lung cancer (NSCLC) from both the US and the EU. The submission was withdrawn due to lack of positive data.

Based on strong quarterly results, AstraZeneca provided guidance for the full year of 2009. The company expects its earnings per ADS in the range of $6.20-$6.40.

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