Productivity Improvements, Emerging Markets Contribute to AstraZeneca's Net Profits 29% Y/Y Growth in Q3

Anglo-Swedish pharmaceutical company AstraZeneca has posted strong third-quarter and nine months financial results as emerging markets boosted sales momentum, portfolio diversification offset the impact of generic competition in mature markets, and productivity improvements bore fruit. As a result, the company recorded a 31% year-on-year (y/y) rise in operating income, as calculated by Global Insight, to US$2.4 billion and a 29% y/y rise in net profits to US$1.7 billion in the third quarter of the year. The group's operating margin, as calculated by Global Insight, grew by 5.2 percentage points to 30.7% over the period.

In the third quarter of the year, sales grew by 9% y/y on an as-reported basis and by 3% y/y at constant exchange rate (CER) to US$7.8 billion, fuelled by strong performance in emerging markets, where the company's revenues expanded by 28% y/y on an as-reported basis and 18% y/y at CER to US$1.1 billion. On the other hand, sales were flat in the United States as sales of antihypertensive Toprol-XL (metoprolol succinate) felt the bite of generic competition. On the expenses side, research and development (R&D) expenditure was down by 3% y/y to US$1.3 billion, reflecting productivity improvements, portfolio re-adjustments, restructuring benefits and lower charges in relation to intangible asset impairments. Cost of sales was up 6% y/y to US$1.5 billion despite lower collaboration payments to Merck & Co (U.S.) and efficiency savings (see United States - United Kingdom: 29 February 2008: Merck Holds On to AstraZeneca Products). Selling, general and administrative costs were flat at US$2.5 billion as efficiency savings and productivity improvements counterbalanced the company's investments in emerging markets. AstraZeneca booked US$117 million in restructuring costs and US$106 million in MedImmune amortisation in the third quarter of the year.

In the third quarter of the year, the cardiovascular franchise was the company's top earner by some margin as AstraZeneca's second highest earning franchise, the gastrointestinal one, failed to deliver significant growth. The cardiovascular franchise posted revenues of US$1.8 billion, a 4% y/y increase at CER and this despite Toprol's 42% y/y sales drop at CER on the back of U.S. generic competition. Revenues from anti-cholesterol drug Crestor (rosuvastatin calcium) fuelled growth in the franchise as sales grew by 28% y/y at CER to US$922 million. Crestor saw strong growth in the United States where the drug benefited from its 2007 atherosclerosis indication extension (see United Kingdom: 9 November 2007: AstraZeneca Gets U.S. FDA Approval on Crestor for Atherosclerosis). Revenues were down 4% y/y at CER to US$1.6 billion in the gastrointestinal franchise as lower U.S. prices continued to impact sales of Nexium (esomeprazole) while sales of Losec/Prilosec (omeprazole) suffered from a new generic market entrant that challenges the drug's 40-mg formulation.

Special mentions could also be made for asthma treatments Symbicort (budesonide, formoterol) and anti-psychotic Seroquel (quetiapine fumarate) whose sales respectively expanded by 25% y/y at CER to US$501 million and 4% y/y at CER to US$1.1 billion. Symbicort is experiencing strong market penetration while Seroquel remains the market leader and will further benefit from its recent U.S. label extension (see United Kingdom: 15 October 2008: AstraZeneca Secures U.S. Approval for Seroquel XR in Bipolar Mania and Depression).

Outlook and Implications

AstraZeneca has posted another strong set of quarterly financial results this year, which has prompted the company to yet again raise its earning guidance. The company now sees core earnings per share in the range of US$4.90-5.05, up from its second quarter forecast of US$4.60-4.90.

On the revenue side, AstraZeneca can expect a few of its blockbusters to further contribute to the company's top-line. Indeed, the company is awaiting a raft of regulatory decisions in relation to Seroquel XR in both the United States and Europe (see United Kingdom: 22 October 2008: AstraZeneca Files Seroquel XR in General Anxiety Disorder in Europe). In addition, AstraZeneca is also seeking a paediatric indication for Seroquel in the United States, which if granted would extend the drug's patent life by six months. Seroquel's U.S. patent is due to expire in 2011. With regards to Crestor, AstraZeneca has secured the rights to market the drug in Germany, Spain, Poland, Norway and Malta in October 2008. Launch on two of Europe's top five markets and in fast-growing Poland will boost the drug's European revenues. In addition, the recent settlement of a Nexium litigation ensures that AstraZeneca's top-earner carries on bringing in steady revenues for the foreseeable future (see United States - United Kingdom - India: 15 April 2008: Settlement Reached on Nexium After AstraZeneca's Patent Infringement Win over Ranbaxy). Finally, AstraZeneca seems in a favourable position to derive growth from emerging markets, where its sales reached the US$1 billion mark for the second time this year. The company is looking at ways to capitalise on growth in those markets (see United Kingdom: 29 September 2008: AstraZeneca Weighs Options on Branded Generic Market in Emerging Countries).