AstraZeneca Plc – Q3 Results

Year-to-date and Q3 2020 results

On track to meet full-year guidance; executing the strategy of sustainable growth through innovation

In the year to date, AstraZeneca delivered increases in the top line, profit and cash, underpinned by a strategy of sustainable growth through innovation. Total Revenue was in line with expectations and the operating performance continued to improve, with earnings growth in the third quarter reflecting Collaboration Revenue and Other Operating Income and Expense weighted towards the fourth quarter. As a result, full-year guidance remains unchanged.

Pascal Soriot, Chief Executive Officer, commented:

“We made encouraging headway in the quarter, despite the ongoing disruption from the COVID-19 pandemic. Highlights of the sales performance included further success in Oncology and an acceleration in the progress of Farxiga. Our pipeline also excelled, with Farxiga expanding its potential beyond diabetes and heart failure with ground-breaking new data in chronic kidney disease, while regulatory submission acceptance was achieved for anifrolumab in lupus.

In the fight against COVID-19, we advanced our vaccine collaboration with the University of Oxford and are launching Phase III trials for our long-acting antibody combination for the prophylaxis and treatment against COVID-19 for people who need an immediate defence or whose weaker immune systems mean they are less likely to benefit from a vaccine.

We continue to progress in line with our expectations and maintain our full-year guidance, which is underpinned by the strategy of sustainable growth through innovation.”

Table 1: Financial summary

Highlights of Total Revenue in the year to date included:

–  An increase in Product Sales of 9% (11% at CER) to $18,879m. The new medicines⁶ improved by 34% (36% at CER) to $9,894m, including new-medicine growth in Emerging Markets of 61% (68% at CER) to $2,189m. Globally, the new medicines represented 52% of Total Revenue (YTD 2019: 42%). The fall in Collaboration Revenue in the third quarter primarily reflected the comparative effect of milestone receipts in Q3 2019 in respect of Lynparza

–  Oncology growth of 23% (24% at CER) to $8,185m, while New CVRM⁷ increased by 7% (10% at CER) to $3,450m. Respiratory & Immunology declined by 1% (an increase of 1% at CER) to $3,841m and fell in the third quarter by 12% to $1,165m, a result of particular challenges facing Pulmicort in China

–  An increase in Emerging Markets of 6% (11% at CER) to $6,466m, with China growth of 9% (11% at CER) to $4,013m. The latter included an adverse impact of 14 percentage points (15 at CER) from reduced sales of Pulmicort. In the third quarter, China grew by 6% to $1,354m

–  An increase in the US of 12% in the year to date to $6,445m and in Europe by 6% (7% at CER) to $3,709m. Europe Product Sales grew by 10% in the quarter (8% at CER) to $1,259m, with a decline in Total Revenue of 9% (11% at CER) to $1,262m reflecting the fall in level of the aforementioned Lynparza Collaboration Revenue receipts, which are recognised and reported in the Europe region

Guidance

The Company provides guidance for FY 2020 at CER.

Financial guidance for FY 2020 is unchanged. Total Revenue is expected to increase by a high single-digit to a low double-digit percentage and Core EPS is expected to increase by a mid- to high-teens percentage.

AstraZeneca recognises the heightened risks and uncertainties from the impact of COVID-19⁸. Variations in performance between quarters can be expected to continue.

The Company is unable to provide guidance and indications on a Reported basis because AstraZeneca cannot reliably forecast material elements of the Reported result, including any fair-value adjustments arising on acquisition-related liabilities, intangible asset impairment charges and legal-settlement provisions. Please refer to the cautionary-statements section regarding forward-looking statements at the end of this announcement.

Indications

The Company provides indications for FY 2020 at CER:

–  The Company is focused on improving operating leverage

–  A Core Tax Rate of 18-22%. Variations in the Core Tax Rate between quarters are anticipated to continue

–  Capital Expenditure is expected to be broadly stable versus the prior year

Currency impact

If foreign-exchange rates for October to December 2020 were to remain at the average of rates seen in the year to date, it is anticipated that there would be a low single-digit adverse impact on Total Revenue and Core EPS. The Company's foreign-exchange rate sensitivity analysis is contained within the operating and financial review.

Financial summary

–  Total Revenue, comprising Product Sales and Collaboration Revenue, increased by 8% in the year to date (10% at CER) to $19,207m. Product Sales grew by 9% (11% at CER) to $18,879m, driven primarily by the performances of the new medicines across the three therapy areas and Emerging Markets

–  The Reported and Core Gross Profit Margins⁹ were stable at 80% and 81%, respectively. A Core Gross Profit Margin in the third quarter of 79% was also unchanged versus the prior year

–  Reported Total Operating Expense declined by 2% in the year to date (1% at CER) to $12,646m and represented 66% of Total Revenue (YTD 2019: 73%). Core Total Operating Expense increased by 4% (5% at CER) to $10,979m and represented 57% of Total Revenue (YTD 2019: 59%)

–  Reported R&D Expense increased by 8% in the year to date to $4,272m; Core R&D Expense increased by 9% to $4,165m. The increases partly reflected investment in the pipeline, including the development of datopotomab deruxtecan (DS-1062), and the ending in 2019 of the release of the upfront funding of Lynparza development as part of the collaboration with MSD¹⁰

–  Reported SG&A Expense declined by 7% in the year to date (5% at CER) to $8,084m; Core SG&A Expense increased by 1% (3% at CER) to $6,524m. The difference in the movements partly reflected fair-value adjustments arising on acquisition-related liabilities, as well as an increase in legal provisions recognised in 2019, offset by additional intangible asset impairment charges recorded in the year to date

–  Reported Other Income and Expense reduced by 15% in the year to date (14% at CER) to $888m. Core Other Income and Expense fell by 16% in the year to date (15% at CER) to $889m and, in the third quarter, by 19% (20% at CER) to $285m

–  The Reported Operating Profit Margin increased in the year to date by six percentage points to 19%; the Core Operating Profit Margin increased by one percentage point to 28%

–  Reported EPS of $1.66 in the year to date represented an increase of 111% (113% at CER). Core EPS grew by 13% (16% at CER) to $2.95

–  Net Cash Inflow from Operating Activities of $3,001m in the year to date. This was a year-on-year increase of $1,407m, partly reflecting a $1,328m improvement in Reported Operating Profit to $3,675m and a favourable movement in the Increase in Working Capital and Short-Term Provisions