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AstraZeneca CEO says he is focused on new drug launches, not M&A

AstraZeneca PLC, the U.K. drugmaker that has been selling off older blockbuster drugs including the antipsychotic Seroquel, said it is focused on launching a raft of new medicines to drive future growth, rather than acquisitions, as it reported first-quarter sales impacted by generic competition to its former best-selling cholesterol treatment, Crestor.

A strong performance in China, where sales were 31% higher than the year-ago period, continued to insulate the Cambridge, England-based pharmaceutical company from generic erosion to some of its former best-selling products, notably Crestor — sales of which plunged by 38% in the quarter. Revenue for the quarter dropped by 9% at constant exchange rates. Still, gains from new products will start to come through in the second half of the year, AstraZeneca said, as the outlook for the rest of the year was reiterated and the dividend policy maintained.

"The headwinds that we are experiencing from patent expiries will be very much behind us at the end of this year," CEO Pascal Soriot said on a conference call with reporters following the first-quarter results. "We are very focused on delivering those new products and ... we have a very very busy period of launches. ... For us, the issue is really to come up with innovation and get that reflected in our share price," he said.

AstraZeneca has been offloading older products and striking alliances in order to fund late-stage medicines in development. Earlier this week, the company declined to comment on recent reports that it may sell Crestor. AstraZeneca has pinned its hopes on growth in the oncology franchise, notably lung cancer drug Tagrisso, which recently gained U.S. regulatory approval for use in the first line of treatment of the disease. An $8.5 billion externalization deal with Merck & Co. Inc. in 2017 revolves around the development of Lynparza in a number of combinations.

Berenberg analyst Alistair Campbell said the 16% miss in EPS was attributable to a rise in sales and general administrative costs of $100 million in the quarter in order to support new product launches. "Sales from seven drugs (Brilinta, Farxiga, Lynparza, Tagrisso, Imfinzi, Fasenra and Calquence) drive an incremental $12 billion in sales in our model for 2017 to 2023 and are central to the turnaround," Campbell wrote in a note to clients. "Although guidance has been reiterated, the Q1 EPS miss may unsettle some investors and the shares may be a touch weak on these results."

Sales of oncology medicines, which jumped by 39% in the quarter and now account for a quarter of all product sales, were boosted by Tagrisso which came in at $338 million compared with consensus estimates at $324 million and Lynparza, which had sales of $119 million against estimates at $111 million.

"Oncology remains the star performer and we look forward to more of the same during the remainder of 2018 but with important contributions more broadly from key products such as Tagrisso, Fasenra, Lynparza and Brilinta," Brian White, an analyst at Cantor Fitzgerald with a "buy" recommendation, said in a note.