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AstraZeneca's (AZN) Q3 Earnings Beat, New Drugs Drive Sales

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AstraZeneca plc (AZN - Free Report) beat the Zacks Consensus Estimate for both earnings and sales in the third quarter of 2018. With its product sales growing after a long time, Pascal Soriot, AstraZeneca’s chief executive officer, said this marks “the start of a period of sustained growth” for several years. The Swiss pharma giant maintained its previously issued outlook for 2018. The stock rose slightly in pre-market trading on November 8.

This year so far, AstraZeneca’s shares have risen 13% compared with the industry’s increase of 5%.

 

 

Third-quarter 2018 core earnings of 36 cents per American Depositary Share (“ADS”) beat the Zacks Consensus Estimate of 33 cents. Core earnings per share of 71 cents declined 22% year over year at constant exchange rates (“CER”) hurt by lower revenues and operating profit.

Total revenues declined 13% at CER to $5.34 billion in the reported quarter. Revenues, however, beat the Zacks Consensus Estimate of $5.12 billion.

All growth rates mentioned below are on a year-over-year basis and at CER.

Product Sales Rise

Product sales rose 9% at CER in the quarter to $5.27 billion. Higher sales of newer medicines, particularly cancer drugs, and strong performance in emerging markets, mainly China, offset lower sales of many other legacy medicines to drive product sales growth. AstraZeneca’s newer medicines sales rose 86% in the quarter as almost every new product it has launched in recent years has done well.

Externalization revenues were $74 million in the quarter, down 95%.

Externalization revenues are the revenues arising from AstraZeneca’s externalization agreements.

Among AstraZeneca’s various therapeutic areas, Oncology sales were up 57%, New Cardiovascular, Renal and Metabolism (CVRM) was up 19%, Respiratory sales rose 5% and other medicines were down 19%.

Newer Products

Among the newer medicines, Lynparza sales rose 12.7% sequentially to $169 million in the quarter. AstraZeneca markets Lynparza in partnership with Merck (MRK - Free Report) .

Tagrisso recorded sales of $506 million, up almost 20% year over year driven by increased testing rates and rapid uptake in the first-line setting. Tagrisso was approved in first-line setting for advanced lung cancer in the United States in April in EU in June and in Japan in August.

Imfinzi generated sales of $187 million in the quarter compared with $122 million in the second quarter. In February, Imfinzi was approved and immediately launched for the second indication in the United States — early stage lung cancer (NSCLC) — which has driven sales higher in 2018 so far. The majority of sales in the third quarter were from the lung cancer indication. Imfinzi was approved in the EU for early-stage lung cancer indication in September.

Calquence, which was launched in the United States in October last year, generated sales of $18 million in the third quarter compared with $12 million in the previous quarter.

Brilinta/Brilique sales were $336 million in the reported quarter, up 20% year over year.

Farxiga recorded sales of $355 million in the quarter, up 27% as the medicine continued to lead the market in terms of volume.

New asthma medicine, Fasenra recorded sales of $86 million in the quarter, compared with $65 million in the previous quarter. AstraZeneca said Fasenra enjoys leadership position among novel biologic asthma medicines.

Bevespi, a LAMA/LABA in a pressurized metered dose inhaler, recorded sales of $10 million in the quarter, higher than $8 million in the previous quarter amid slower-than-anticipated growth in LAMA/LABA class.

Among other new medicines, Movantik/Moventig recorded sales of $32 million in the quarter, up 7%, while Iressa sales declined 4% to $131 million. Bydureon sales increased 19% to $152 million, Byetta sales were down 10% to $34 million and Onglyza sales rose 12% to $140 million.

Older Products

Crestor sales declined 38% to $353 million. U.S. and Europe sales were weak as multiple generic versions of the drug entered the market. Crestor sales rose 13% in Emerging Markets to $207 million due to higher demand in China. AstraZeneca is hopeful that the effects of the Crestor patent expiration in Europe and Japan will recede materially in 2019.

Seroquel XR sales declined 35% to $40 million due to competition from generic launches.

Symbicort sales declined 7% in the quarter to $619 million due to pricing pressure in the United States and stiff competition in Europe. Pulmicort sales rose 10% to $264 million as higher sales in the emerging markets made up for a weaker performance in the United States and Europe.

Nexium recorded sales of $422 million, down 9% due to declining sales in the United States and Europe. In October, AstraZeneca announced its decision to divest prescription medicine rights to Nexium in Europe.

Meanwhile, sales of other legacy drugs including Faslodex, Zoladex, Arimdex, Casodex, Seloken and Synagis grew in the quarter while sales of others like Atacand and Daliresp/Daxas declined.

Regional Performance

In the United States, product sales were up 25% to $1.74 billion as higher sales of newer products were partially offset by lower Symbicort sales. However, European markets witnessed a 5% decline in sales to $1.13 billion. Revenues from Emerging Markets were up 16% to $1.7 billion, primarily on the back of strong growth in China (up 32% to $954 million). In Established ROW market (comprising Japan, Canada and other markets), sales declined 11% to $697 million.

Profit Discussion

AstraZeneca’s core gross margin declined one percentage points to 79.4%. Core selling, general and administrative (SG&A) expenses rose 7% to $2.26 billion due to investment in product launches/line extensions.

In the quarter, core research and development (R&D) expenses declined 6% to $1.24 billion. Operating margin declined 4 percentage points to 24.7% in the quarter due to lower revenues and higher SG&A costs.

2018 Outlook

AstraZeneca maintained its previously issued earnings and sales outlook.

AstraZeneca expects core EPS for 2018 in the range of $1.65 to $1.75 per ADR. The company expects product sales to grow in low-single digit percentage.

Management guided total externalization revenues and other income in 2018 to be less than 2017.

Currency movements are expected to favorably impact product sales and core earnings per share by a low single-digit percentage.

Adjusted R&D costs are expected to decline in low single-digit percentage versus prior expectation of being in line or decline in a low single-digit percentage range from 2017 levels.

The company anticipates SG&A costs to increase broadly in line with the rate seen year to date to support product launches like Fasenra and Imfinzi. Previously, the company expected this cost item to increase in low to mid-single digit percentage

Adjusted tax rate is expected to be in the range of 16%-20% compared with 14% for 2017.

 

AstraZeneca PLC Price, Consensus and EPS Surprise

 

AstraZeneca PLC Price, Consensus and EPS Surprise | AstraZeneca PLC Quote

Zacks Rank & Stocks to Consider

AstraZeneca currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked pharma stocks include Johnson & Johnson (JNJ - Free Report) and Eli Lilly (LLY - Free Report) . Both are #2 Ranked (Buy) stocks.

J&J’s earnings estimates have risen 0.2% for 2018 and 0.6% for 2019 over the past 30 days. The stock has gained 3.6% this year so far.

Lilly’s earnings estimates have remained stable for 2018 and increased 0.2% for 2019 over the past 30 days. The stock has gained 29.9% this year so far.

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