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AstraZeneca's (AZN) Q4 Earnings Beat, New Drugs Drive Sales

Zacks Equity Research

AstraZeneca plc AZN beat the Zacks Consensus Estimate for both earnings and sales in the fourth quarter of 2018. Pascal Soriot, AstraZeneca’s chief executive officer, said “AstraZeneca has returned to growth” as its product sales grew for two consecutive quarters, Per Soriot, 2019 will be marked by successful pipeline progress and commercial initiatives. The stock rose 5.4% in pre-market trading on Feb 14.

This year so far, AstraZeneca’s shares have declined 4.9% against the industry’s increase of 2.2%.

Fourth-quarter 2018 core earnings of 79 cents per American Depositary Share (“ADS”) beat the Zacks Consensus Estimate of 73 cents. Core earnings per share of $1.58 increased 22% year over year at constant exchange rates (“CER”), benefiting from higher revenues and operating profit.

Total revenues were up 14% at CER to $6.4 billion in the reported quarter. Revenues also  beat the Zacks Consensus Estimate of $6.16 billion.

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

Product Sales Rise

Product sales rose 8% at CER in the quarter to $5.77 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 and drove product sales growth.

Externalization revenues were up more than twofold from the  year-ago period to $649. These revenues are generated from AstraZeneca’s externalization agreements.

Among AstraZeneca’s various therapeutic areas, Oncology was up 61%, New Cardiovascular, Renal and Metabolism (“CVRM”) was up 11% and Respiratory rose 5%. However, other medicines declined 21%.

Newer Products

Among the newer medicines, Lynparza sales rose 23.7% sequentially to $209 million in the quarter. AstraZeneca markets Lynparza in partnership with Merck MRK. The ovarian cancer drug received label expansion to include breast cancer patients in the United States in 2018.

Tagrisso recorded sales of $594 million, nearly doubling year over year, driven by increased 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 $262 million in the quarter compared with $187 million in the third quarter. In February, Imfinzi was approved and immediately launched for the second indication in the United States — early stage lung cancer (NSCLC) — which drove sales higher in 2018. Imfinzi was approved in the EU for early-stage lung cancer indication in September.

Calquence, which was launched in the United States in October 2017, generated sales of $24 million in the fourth quarter compared with $18 million in the previous quarter.

Brilinta/Brilique sales were $376 million in the reported quarter, up 29% year over year.

Farxiga recorded sales of $397 million in the quarter, up 24% driven by growth across all markets.

New asthma medicine, Fasenra recorded sales of $125 million in the quarter compared with $86 million in the previous quarter. AstraZeneca said Fasenra enjoy 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, similar to the previous quarter, amid slower-than-anticipated growth in LAMA/LABA class.

Among other new medicines, Movantik/Moventig recorded sales of $25 million in the quarter, down 17%. Iressa sales declined 11% to $112 million. Bydureon sales decreased 5% to $138 million, Byetta sales were down 31% to $32 million and Onglyza sales fell 15% to $148 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. Seroquel XR sales declined 64% to $56 million due to competition from generic launches.

Symbicort sales declined 13% in the quarter to $636 million due to pricing pressure in the United States and stiff competition in Europe. Pulmicort sales rose 9% to $389 million as higher sales in the emerging markets made up for weaker performance in the United States and Europe.

Nexium recorded sales of $390 million, down 6% due to lower sales in the United States and Europe. In October, AstraZeneca announced its decision to divest prescription medicine rights to Nexium in Europe.

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

Regional Performance

In the United States, product sales were up 15% to $2 billion on the back of higher sales of newer products. However, European markets witnessed a 7% decline in sales to $1.17 billion. Revenues from Emerging Markets were up 16% to $1.77 billion, primarily on the back of strong growth in China (up 22% to $948 million). In Established ROW market (comprising Japan, Canada and other markets), sales were up a mere 1% to $792 million.

Profit Discussion

AstraZeneca’s core gross margin declined one percentage point to 78.6%. Core selling, general and administrative (SG&A) expenses rose 15% to $2.44 billion.

In the quarter, core research and development (R&D) expenses rose 3% to $1.47 billion. Operating margin increased 3 percentage points to 34.2% in the quarter due to higher revenues.

2019 Outlook

AstraZeneca provided its earnings and sales outlook for 2019, which looked encouraging compared to market expectations.

AstraZeneca expects core EPS for 2019 in the range of $1.75 to $1.85 per ADS. The Zacks Consensus Estimate is pegged at $1.70. The company expects product sales to grow in high-single digit percentage. Total externalization revenues and other income is expected to decline.

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% compared with 11% for 2018.

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 GlaxoSmithKline plc GSK and Bristol-Myers Squibb Company BMY. While Glaxo sports a Zacks Rank #1, Bristol-Myers carries a Zacks Rank #2 (Buy).

Glaxo’s earnings estimates have risen from $2.86 to $2.95 for 2019 over the past 60 days.

Bristol-Myers’ earnings estimates have increased from $4.07 to $4.16 for 2019 over the past 60 days.

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