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AstraZeneca (AZN) Q2 Earnings Top, '19 Product Sales View Up

Zacks Equity Research

AstraZeneca AZN beat the Zacks Consensus Estimate for both earnings and sales in the second quarter of 2019 and also raised its previously issued product sales growth guidance range for the year.

Earnings & Sales Beat

Second-quarter 2019 core earnings of 37 cents per American Depositary Share beat the Zacks Consensus Estimate of 30 cents. Core earnings per share of 73 cents increased 1% year over year at constant exchange rates (“CER”), benefiting from higher product sales.

Total revenues were up 13% (18% at CER) to $5.82 billion in the reported quarter driven by higher product sales. Revenues also beat the Zacks Consensus Estimate of $5.51 billion.

AstraZeneca’s shares rose around 5% in pre-market trading in response to the better-than-expected results. In fact, the stock has rallied 6.2% this year so far against the industry’s decrease of 0.8%.

 

 

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

Product Sales Rise

Product sales rose 19% at CER in the quarter to $5.72 billion. Higher sales of newer medicines, particularly cancer drugs, and higher sales in every sales region, offset lower sales of many other legacy medicines and drove product sales growth.

The Cambridge, U.K. based drugmaker’s newer medicines recorded sales of $2.39 billion in the second quarter, up 72% at CER as almost every product it has launched in recent years did well. In fact, AstraZeneca expects five of its newer medicine to reach blockbuster status this year. 

Collaboration revenues (formerly Externalization revenues) declined 12% from the year-ago period to $105 million.

Among AstraZeneca’s various therapeutic areas, Oncology was up 57%, New Cardiovascular, Renal and Metabolism was up 13% and Respiratory rose 7%. However, other medicines declined 6%.

Newer Products Drive Sales

Among the newer medicines, Lynparza sales rose 95% year over year and 19% sequentially to $283 million in the quarter on the back of expanded use in ovarian and breast cancer. Sales of the drug in the United States increased 72%, following the successful launch in first-line ovarian cancer setting in late 2018. AstraZeneca markets Lynparza in partnership with Merck MRK.

Tagrisso recorded sales of $784 million, up 92% year over year driven by continued underlying demand growth and rapid uptake in the first-line setting.

Imfinzi generated sales of $338 million in the quarter, up 14.6% sequentially mainly driven by strong demand in lung cancer patients. Like previous quarters, the vast majority of Imfinzi’s sales came from the United States and the lung cancer indication.

Calquence, which was launched in the United States in October 2017, generated sales of $35 million in the second quarter compared with $29 million in the previous quarter.

Brilinta/Brilique sales were $389 million in the reported quarter, up 28% year over year driven by continued patient uptake in acute coronary syndrome and high-risk post-myocardial infarction indications.

New hyperkalemia drug Lokelma recorded sales of $2 million in the quarter, predominantly in the United States, where it was recently launched. The drug is expected to be launched in other markets soon.

Farxiga recorded sales of $377 million in the quarter, up 16% mainly driven by growth in emerging markets and Europe. U.S. sales were flat as growth slowed due to increased competition and formulary plan changes for competitors’ drugs. Sales in Europe were up 22%. Emerging market sales increased 40%, fueled by growth in China.

New asthma medicine, Fasenra recorded sales of $167 million in the quarter compared with $129 million in the previous quarter. AstraZeneca said Fasenra enjoys leadership position among novel biologic asthma medicines in the United States and European countries like Germany and Japan.

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

Among other medicines, Iressa sales were down 13% to $118 million. Bydureon sales declined 8% to $141 million and Onglyza sales declined 4% to $116 million. Byetta sales declined 10% to $25 million and Movantik/Moventig recorded sales of $22 million in the quarter, down 8%.

Older Products

Crestor sales declined 3% to $310 million. U.S. and Europe sales were weak as multiple generic versions of the drug entered the market.

Symbicort sales declined 9% in the quarter to $585 million due to lower sales in the United States, Japan and Europe. U.S. sales were hurt by pricing pressure and the impact of managed-market rebates. Pulmicort sales rose 23% to $333 million as higher sales in the emerging markets made up for weaker performance in Europe.

Nexium recorded sales of $393 million, down 7% due to lower sales in the United States and Europe. Sales of other legacy drugs including Faslodex, Zoladex, Arimdex, Casodex Seloken and Daliresp/Daxas grew in the quarter while sales of others like Synagis, Duaklir and Atacand declined.

Regional Performance

In the United States, product sales were up 16% to $1.9 billion on the back of higher sales of newer products. European markets returned to growth in the second quarter witnessing an 8% increase in sales to $1.05 billion. Revenues from Emerging Markets were up 27% to $1.95 billion, primarily on the back of strong growth in China (up 44% to $1.17 billion).

Importantly, AstraZeneca’s chief executive officer, Pascal Soriot, in an interview to Bloomberg, said that sales growth in China could slow down in the second half due to government pressure on prices of older products.

In Established ROW market (comprising Japan, Canada and other markets), sales were up 21% to $847 million.

Profit Discussion

AstraZeneca’s core gross margin was flat (at CER) at 82.1%. Core selling, general and administrative (SG&A) expenses rose 8% to $2.19 billion.

In the quarter, core research and development (R&D) expenses rose 1% to $1.28 billion. Core operating profit rose 8% to $1.37 billion in the quarter. Operating margin, however, declined 2 percentage points to 23.4% in the quarter.

Ups 2019 Product Sales Outlook

AstraZeneca raised its product sales guidance, following a strong performance in the first half of 2019. The company, however, maintained its earnings outlook for 2019.

AstraZeneca maintained core EPS guidance for 2019 in the range of $3.50 to $3.70. The company expects product sales to grow by a low double-digit percentage versus prior expectation of a high-single digit percentage. Core operating profit is expected to grow in a mid-teens percentage range in 2019.

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

Adjusted tax rate is expected to be in the range of 18%-22%.

Zacks Rank & Stocks to Consider

AstraZeneca currently carries a Zacks Rank #4 (Sell).

AstraZeneca PLC Price, Consensus and EPS Surprise

 

AstraZeneca PLC Price, Consensus and EPS Surprise

AstraZeneca PLC price-consensus-eps-surprise-chart | AstraZeneca PLC Quote

 

Some better-ranked large-cap pharma stocks are Roche Holding AG RHHBY and Sanofi SNY, both with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Roche have gained 9.1% this year so far. Earnings estimates for 2019 have risen 2.9% while that for 2020 have increased 3.3% over the past 30 days.

Sanofi’s earnings estimates have increased 0.3% and 1.1%, respectively, for 2019 and 2020 over the past 30 days.

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