AstraZeneca earnings fall as generic drugs depress sales, 16% object to board pay
Drug giant AstraZeneca popped the cap on falling first-quarter sales and earnings but both were at least in line with expectations, while shareholders later gave the board a 'bloody nose' on its director pay policy.
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Revenues were down 6% to $6.1bn, ahead of consensus City forecasts of $5.7bn, with operating profit up 11% to $0.93bn and core earnings per share down 7% to $1.08, as expected by analysts.
Currencies were unhelpful, with revenue up 1% at constant rates and earnings down by a lesser 3%.
The Anglo-Swedish company said its five growth platforms delivered 13% growth and now represent 56% of total revenue.
Of these, Brillinta, a treatment for acute heart conditions, was up 45% from a low base; the diabtese business was up 47%; respiratory up 7% despite Symbicort coming under pressure; emerging markets up 18% thanks to strong respiratory sales in China; and Japan down 2% due the local competitive environment.
Broker Shore Capital said the sales outperformance reflected $309m in revenues from the co-commercialisation agreement with Daiichi for constipation treatment Movantik in the US and heartburn medicine Nexium in Japan.
in the pipeline Astrazeneca has 72 cancer trials underway, including 31 in the hot area of immuno-oncology
Chief executive Pascal Soriot said the co-commercialisation agreement for Movantik in the US "was a good illustration of how we will bring important medicines to patients and externalisation value to our shareholders".
Buoyed by the encouraging start, Soriot reiterated his guidance from March for revenue to decline by a mid single-digit percentage at constant currencies, with EPS expected to increase by a low single digit.
On the pipeline he said there was progression in each therapy area, with 72 cancer trials underway, including 31 in the hot area of immuno-oncology, where drugs encourage the body's immune system to help battle cancer.
Alongside Friday's numbers, Astrazeneca also unveiled an immuno-oncology collaboration where US-based Celgene Corporation will pay $450m to the FTSE 100 company to develop and commercialise its MEDI4736 product across a range of blood cancers.
Although Astrazeneca turned down a bid from US rival Pfizer last year, sector watchers are predicting merger and acquisition activity to not slow down for some time.
A recent note from Morgan Stanley suggested M&A was currently being rewarded "and likely will continue to be rewarded for some time" along with spending on research and development.
Read more: Teva launches cash and shares bid for Mylan
ShoreCap's Brian White argued that the investment case for Astra "has little to do" with the first quarter's financial performance and "much more to do with its product development pipeline and the immuno oncology portfolio in particular".
He added that the challenges facing the company in 2015/16 were already reflected in consensus numbers.
Of more importance, White opined, is the evolution of the competitive landscape in immuno-oncology, where Astra is "well placed" to complete on the back of a combination of its CTLA-4 and PD-L1 check point inhibitors that could "potentially leap frog the competition".
On the downside, Keith Bowman at Hargreaves Lansdown highlighted the fact that generic competition continues to impact performance, with US sales of Nexium for acid reflux down 53%, with sales for all but its emerging markets business falling.
"On balance, confidence in the group’s standalone potential growth prospects was expressed via the rejection of the Pfizer bid, whilst investor patience is being rewarded in the current low interest rate environment via a dividend yield of around 3.5%.
"Nonetheless, the wait for new major drugs continues, despite the share price having outperformed the wider FTSE-100 index by some 14% over the last year."
Director pay vote
At the company's annual general meeting later on Friday, 16% of shareholders voted against the remuneration report for directors.
Many investors vote against the management pay policy because it has not explicitly linked long-term incentives to recent revenue targets that helped it deflect the Pfizer bid.
At that time, Soriot set out a series of ambitious sales targets last year in an attempt to win backing for the company as it sought to fend off its US suitor, including hitting a $45bn revenue goal by 2023, and separate objectives for the company's five growth platforms.
But Astrazeneca's remuneration committee has since said that long-term share awards will remain link directly to the long-term business plan.
However, fund manager Richard Buxton at institutional investor Old Mutual, wrote a letter to the Financial Times arguing that executive incentives a the company should "vest only at the level of the spurned takeover".
He said that this would "provide comfort to shareholders that if things do not play out as the management envisage, the executives have shared in the pain felt by shareholders at the lost opportunity".