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AstraZeneca’s (AZN - Analyst Report) fourth-quarter 2012 core earnings of $1.56 per American Depositary Share (ADS) beat the Zacks Consensus Estimate of $1.38. Earnings were up 1% (at constant exchange rates [CER]) year over year. 

AstraZeneca’s quarterly revenues fell 15% (at CER) year over year to $7.3 billion, primarily due to intense generic competition coupled with the disposal of Astra Tech and Aptium revenues. Revenues were above the Zacks Consensus Estimate of $7.1 billion. 
 
Revenue for 2012 was $27.9 million, down 15 % (at CER) from a year ago. Earnings per share came in at $6.41, down 9% from $7.28 posted in 2011. 
 
AstraZeneca’s business in 2012 was negatively impacted by the patent expiry in markets and tough market conditions on a global basis. Tough market conditions coupled with generic competition to the company’s key drugs hurt 2012 results.
 
All growth rates mentioned below are on a year-on-year basis and at CER. 
 
The Quarter in Detail 
 
U.S. revenues were down 23% in the fourth quarter of 2012 to $2.8 billion, primarily due to generic competition for Seroquel IR. The US healthcare reform negatively impacted fourth-quarter revenues and costs by $250 million.
 
Excluding Seroquel IR, revenue increased by 3.7%, including $84 million of revenues from the company’s share of the Amylin diabetes portfolio. 
 
Revenues declined 9% in the Rest of the World (RoW) to $4.5 billion. The decline was attributed to weakness in the Western European markets, which was down 16% due to loss of exclusivity on four products - Seroquel IR, Atacand, Nexium and Merrem. 
 
Established ROW was down 14% primarily. Results were hurt by an 84% decline in Crestor sales in Canada as a result of generic competition. Revenues in Emerging Markets witnessed 6% growth in the reported quarter fuelled by growth in China, Saudi Arabia and Russia. 
 
The drugs facing generic competition include Seroquel IR (down 92% to $94 million), Nexium (down 1% to $1.0 in billion), Arimidex (down 25% to $122 million), Casodex (down 19% to $112 million), Atacand (down 41% to $202 million) and Merrem (down 5% to $106 million).
 
However, drugs such as Iressa (up 10% to $160 million), Seloken (up 10% to $256 million) Onglyza (up 24% to $88 million), Symbicort (up 8% to $891 million) and Faslodex (up 20% to $175 million) performed well during the quarter. 
 
Brilinta sales were $38 million in the fourth quarter of 2012 compared with $24 million in the third quarter of 2012.
 
Other Details
 
AstraZeneca’s core gross margin remained flat at 81.6% in the fourth quarter of 2012 due to an unfavorable product mix and the absence of Aptium. 
 
Core selling, general and administrative (SG&A) expenses went down 10% to $2.3 billion primarily due to lower selling and marketing costs (mainly in the developed markets). 
 
During the quarter, core research and development (R&D) expenses amounted to $1.2 billion, reflecting a decrease of 28%. Core operating margin was 34.7% of revenue, up 90 basis points. 
 
We note that in Oct 2012, AstraZeneca suspended its share repurchase program. The company has repurchased 57.8 million shares worth $2.6 billion during 2012. The company will not repurchase any shares in 2013 also.
 
2013 Outlook  
 
2013 will be a challenging year for AstraZeneca. The company expects mid-to-high single digit decline in revenue in 2013 primarily due to Seroquel IR and Crestor (in Canada) along with the adverse impact from continued government interventions in price.  
 
AstraZeneca carries a Zacks Rank #3 (Hold). However, other large cap pharma stocks, such as Bayer (BAYRY - Analyst Report), Novo Nordisk (NVO - Analyst Report) and Eli Lilly and Company (LLY - Analyst Report) currently look more attractive with a Zacks Rank #2 (Buy).

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