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AstraZeneca (AZN) Q3 Earnings Top, Upgrades '19 Sales View

Zacks Equity Research

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

Earnings & Sales Beat

Third-quarter 2019 core earnings of 50 cents per American depositary share beat the Zacks Consensus Estimate of 45 cents. Core earnings per share of 99 cents increased 36% year over year at constant exchange rates (“CER”), benefiting from higher product sales.

Total revenues were up 20% (22% at CER) to $6.4 billion in the reported quarter driven by higher product sales. Revenues also beat the Zacks Consensus Estimate of $6.14 billion.

AstraZeneca’s shares rose around 3.1% in pre-market trading in response to the better-than-expected results. In fact, the stock has rallied 17.6% this year so far against the industry’s decrease of 0.3%.

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

Product Sales Rise

Product sales rose 18% at CER in the quarter to $6.13 billion. Higher sales of newer medicines 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 $2.71 billion in the third quarter, up 64% at CER as almost every product it has launched in recent years did well. Sales of newer medicines in emerging markets were $539 million, up 90% year over year.

Collaboration revenues (formerly Externalization revenues) were $274 million compared with $74 million in the year-ago period.

Among AstraZeneca’s various therapeutic areas, Oncology was up 48%, New Cardiovascular, Renal and Metabolism was up 11% and Respiratory rose 18%. However, other medicines declined 7%.

Newer Products Drive Sales

Among the newer medicines, Lynparza sales rose 96% year over year and 15.5% sequentially to $327 million in the quarter on the back of expanded use in ovarian and breast cancer. Sales of the drug in the United States increased 86%, following successful launch in first-line ovarian cancer setting in late 2018. AstraZeneca markets Lynparza in partnership with Merck MRK.

Tagrisso recorded sales of $891 million, up 78% year over year driven by continued underlying demand growth and strong uptake in the first-line setting. Sales increased 17% sequentially in the U.S. market.

Imfinzi generated sales of $412 million in the quarter, up 21.9% 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 $44 million in the third quarter compared with $35 million in the previous quarter.

Brilinta/Brilique sales were $416 million in the reported quarter, up 27% 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 $4 million in the quarter, predominantly in the United States, where it was launched last quarter. The drug is expected to be launched in other markets soon.

Farxiga recorded sales of $398 million in the quarter, up 14% mainly driven by growth in emerging markets and Europe.

New asthma medicine, Fasenra recorded sales of $202 million in the quarter compared with $167 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 two quarters, amid slower-than-anticipated growth in LAMA/LABA class.

Among other medicines, Iressa sales were down 29% to $91 million. Bydureon sales declined 16% to $127 million and Onglyza sales declined 7% to $127 million. Byetta sales declined 18% to $28 million and Movantik/Moventig recorded sales of $25 million in the quarter, down 23%.

Older Products

Crestor sales declined 2% to $337 million. U.S. and Europe sales were weak as multiple generic versions of the drug entered the market.

Symbicort sales were up 1% in the quarter to $613 million due to stronger sales in emerging markets. U.S. sales were hurt by pricing pressure and the impact of managed-market rebates. Pulmicort sales rose 31% to $337 million as higher sales in the emerging and U.S. markets made up for weaker performance in Europe.

Nexium recorded sales of $374 million, down 10% due to lower sales in the United States and Europe. Sales of other legacy drugs including Zoladex, Arimdex, Casodex Seloken and Daliresp/Daxas grew in the quarter while sales of others like Faslodex, Synagis, Duaklir and Atacand declined.

Regional Performance

In the United States, product sales were up 17% to $2 billion on the back of higher sales of newer products. Sales in European markets grew 4% in the third quarter to $1.14 billion. Revenues from Emerging Markets were up 29% to $2.12 billion, primarily on the back of strong growth in China (up 40% to $1.28 billion).

In Established ROW market (comprising Japan, Canada and other markets), sales were up 19% to $845 million.

Profit Discussion

AstraZeneca’s core gross margin decline one percentage point (at CER) to 79.4%. Core selling, general and administrative (SG&A) expenses rose 9% to $2.21 billion.

In the quarter, core research and development (R&D) expenses rose 9% to $1.32 billion. Core operating profit rose 41% to $1.88 billion in the quarter. Operating margin increased 4 percentage points to 29.3% in the quarter.

Upgrades 2019 Product Sales Outlook

AstraZeneca upgraded its product sales guidance, following strong performance year to date. The company expects product sales to grow by a low to mid-teens percentage versus prior expectation of a low double-digit percentage.

AstraZeneca however maintained core EPS guidance for 2019 in the range of $3.50 to $3.70. 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 20%-22%.

AstraZeneca PLC Price, Consensus and EPS Surprise

 

AstraZeneca PLC Price, Consensus and EPS Surprise

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

Zacks Rank & Stocks to Consider

AstraZeneca currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader Drug sector are Incyte Corporation INCY and Vertex Pharmaceuticals Incorporated VRTX, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Incyte have gained 22.8% this year so far. Earnings estimates for 2019 have risen 1.6% while that for 2020 have increased 4.5% over the past 30 days.

Vertex’s earnings estimates have increased a respective 2% and 10% for 2019 and 2020 over the past 30 days. Shares are up 15% so far this year.

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