AstraZeneca Plc - Q1 2019 Results

Results in the first quarter were supported by Product Sales growth of 10% (14% at CER1) to $5,465m, a reflection of the sustained performance of new medicines2(+77%, +83% at CER). Global Oncology sales increased by 54% (59% at CER), New CVRM3 by 15% (19% at CER) and, driven by the strength of Fasenra, Respiratory sales increased by 9% (14% at CER). Emerging Markets sales increased by 14% (22% at CER); China sales increased by 21% (28% at CER), with ex-China Emerging Markets also delivering strong growth at CER. US sales increased by 20%, while Europe sales declined by 12% (6% at CER). Japan sales increased by 26% (27% at CER) to $501m.

 

The Reported Operating Margin increased by seven percentage points to 20% and the Core Operating Margin increased by 13 percentage points to 30%. These financial results were accompanied by further positive pipeline developments, with 2019 set to be another busy year for news flow.

 

 

Q1 2019

 

$m

% change

 

Actual

CER

Product Sales

5,465

10

14

Collaboration Revenue4

26

(87)

(86)

Total Revenue

5,491

6

11

 

 

 

 

Reported5 Operating Profit

1,097

58

68

Core6 Operating Profit

1,650

84

96

 

 

 

 

Reported Earnings Per Share (EPS)

$0.47

75

90

Core EPS

$0.89

85

100

 

Pascal Soriot, Chief Executive Officer, commenting on the results said:

"Our 14% Product Sales growth in the quarter reflected the success of our new medicines and Emerging Markets. In Oncology, Tagrisso, Imfinzi and Lynparzacontinued to do well and, in BioPharma, Farxiga, Brilinta and Fasenra also grew strongly. Emerging Markets, our largest sales region, delivered an outstanding performance with a 22% growth rate; all of its sub-regions grew strongly, including China at 28%.

 

Our Core Operating Profit almost doubled, demonstrating strong operating-margin improvement. Together with this encouraging financial start to the year, our highly-productive and sustainable pipeline continued to deliver, notably with a regulatory approval for Lynparza in the EU for the treatment of metastatic breast cancer and approvals of Farxiga in type-1 diabetes. The recently-announced collaboration with Daiichi Sankyo also broadened an exciting Oncology portfolio with a potentially-transformative cancer treatment that could benefit patients around the world. We appreciate the support from our shareholders in realising this exceptional opportunity."

 

Financial summary

-      Product Sales increased by 10% in the quarter (14% at CER) to $5,465m

 

-      The Reported Gross Margin increased by two percentage points (three at CER) to 79%, partly reflecting the mix of Product Sales; the Core Gross Margin also increased by two percentage points to 80%

 

-      Reported Operating Expenses increased by 1% (5% at CER) to $3,858m and represented 70% of Total Revenue (Q1 2018: 74%)Core Operating Expenses increased by 1% (5% at CER) to $3,369m and represented 61% of Total Revenue (Q1 2018: 65%)

 

-      Reported R&D Expenses declined by 1% (an increase of 3% at CER) to $1,266m. Core R&D Expenses declined by 1% (an increase of 3% at CER) to $1,225m

 

-      Reported SG&A Expenses increased by 2% (7% at CER) to $2,514m; Core SG&A Expenses increased by 2% (6% at CER) to $2,066m, reflecting ongoing additional support for new medicines and growth in China

 

-      Reported Other Operating Income and Expense increased by 26% (27% at CER) to $593m, primarily reflecting the impact of the divestment of US rights to Synagis; Core Other Operating Income and Expense increased by 379% (383% at CER) to $594m

 

-      The Reported Operating Margin increased by seven percentage points to 20%; the Core Operating Margin increased by 13 percentage points to 30%

 

-      Reported EPS of $0.47, based on a weighted-average number of shares of 1,267m, represented an increase of 75% (90% at CER); the Reported Tax Rate was 26% (Q1 2018: 16%). Core EPS increased by 85% (100% at CER) to $0.89; the Core Tax Rate was 23% (Q1 2018: 18%). The tax rates reflected the geographical mix of profits and the impact of divestment transactions

 

-      On 29 March 2019, the Company initiated an equity placing of $3.5bn in conjunction with the recent strategic collaboration with Daiichi Sankyo Company, Limited (Daiichi Sankyo). The purpose of the placing was to fund the initial upfront and near-term milestone commitments arising from the collaboration, as well to strengthen AstraZeneca's balance sheet. One of the Company's capital-allocation priorities is to maintain a strong, investment-grade credit rating; the share issuance struck an appropriate balance between the Company's equity investors and creditors

 

Commercial summary

Oncology

Sales growth of 54% in the quarter (59% at CER) to $1,892m, including:

 

-    Tagrisso sales of $630m, representing growth of 86% (92% at CER) that was driven by the 2018 regulatory approvals as a standard of care (SoC) in the 1st-line EGFR7-mutated (EGFRm) NSCLC8 setting. There was a sequential decline in US sales of Tagrisso reflecting inventory and gross-to-net movements; underlying demand growth, however, remained strong. Globally, Tagrisso became AstraZeneca's biggest-selling medicine in the quarter

 

-    Imfinzi sales of $295m, representing growth of 376% (381% at CER). The performance was a result of ongoing launches for the treatment of patients with unresectable, Stage III NSCLC. The majority of sales of Imfinzi were in the US, where it is the only approved medicine following SoC chemoradiation therapy (CRT) for the curative-intent treatment of patients with Stage III, unresectable NSCLC

 

-    Lynparza sales of $237m, representing growth of 99% (105% at CER), driven by expanded use in the treatment of ovarian and breast cancer, including a particularly strong launch in the US as a 1st-line ovarian cancer treatment

 

-    Oncology sales growth in Emerging Markets of 35% (46% at CER) to $490m

 

New CVRM

Sales growth of 15% in the quarter (19% at CER) to $1,033m, including:

 

-    Farxiga sales of $349m, with growth of 17% (23% at CER), ahead of an anticipated label update in major markets to reflect results from the DECLARE trial

 

-    Brilinta sales of $348m, representing growth of 19% (24% at CER), due to continued market penetration in the treatment of acute coronary syndrome and high-risk post-myocardial infarction

 

-    Bydureon sales of $142m, an increase of 2% (4% at CER), despite the impact of supply-chain constraints that are anticipated to ease later in the year

 

-    New CVRM sales growth in Emerging Markets of 26% (40% at CER) to $239m

 

Respiratory

Sales growth of 9% in the quarter (14% at CER) to $1,283m, including:

 

-    A Symbicort sales decline of 8% (3% at CER) to $585m. US sales, at $176m, declined by 4%, reflecting continued pricing pressure and the impact of managed-market rebates, partially offset by positive volumes from government buying and a favourable gross-to-net adjustment. Emerging Markets sales increased by 4% (13% at CER) to $133m

 

-    Pulmicort sales growth of 11% (16% at CER) to $383m

 

-    Fasenra sales of $129m, representing growth of 514% (524% at CER). In the US, new-to-brand prescription data showed that Fasenra was the preferred novel-biologic medicine for the treatment of severe asthma during the period, despite being the third medicine to enter the market

 

-    Respiratory sales growth in Emerging Markets of 18% (26% at CER) to $518m, driven by the aforementioned sales growth of Pulmicort

 

Emerging Markets

The Company's largest region by Product Sales, with growth of 14% in the quarter (22% at CER) to $2,004m, including:

 

-      A China sales increase of 21% (28% at CER) to $1,242m. Highlights included Oncology sales growth of 43% (51% at CER) to $284m and Respiratory growth of 25% (31% at CER) to $400m

 

-    An ex-China sales increase of 3% (13% at CER) to $762m; every Emerging Market sub-region delivered strong growth at CER. Notable performances included sales of $281m in (non-China) Asia-Pacific (+5%, +9% at CER) and $49m in Russia (+44%, +68% at CER)

 

Pipeline highlights

The following table highlights significant developments in the late-stage pipeline since the prior results announcement:

 

Regulatory approvals

-     Lynparza - breast cancer (BRCAm9): regulatory approval (EU)

-     Forxiga - T1D10: regulatory approval (EU, JP)

-     Duaklir - COPD11: regulatory approval (US) (by partner)

Regulatory submissions and/or acceptances

-     Lynparza - breast cancer (BRCAm): regulatory submission (CN)

-     Farxiga - T2D12 (CVOT13): regulatory submission acceptance (US, EU)

-     PT010 - COPD: regulatory submission acceptance (US, EU)

Major Phase III data readouts or other significant developments

-     Lynparza - pancreatic cancer (BRCAm): met primary endpoint

-     selumetinib - NF114: Breakthrough Therapy Designation (US)

-     Brilinta - CAD15 / T2D (CVOT): met primary endpoint

-     saracatinib - IPF16: Orphan Drug Designation (US)

 

FY 2019 guidance reiterated

The Company today reiterates its FY 2019 guidance. All measures in this section are at CER and Company guidance is on Product Sales and Core EPS only. All guidance and indications provided assume that the UK's anticipated exit from the European Union (EU), even in the event of a no-deal exit, proceeds in an orderly manner such that the impact is within the range expected, following the Company's extensive preparations for such an eventuality.

 

Product Sales

A high single-digit percentage increase

 

In addition to the aforementioned Product Sales growth, the Company anticipates productivity gains and operating leverage in FY 2019. Core Operating Profit is anticipated to grow at a faster rate than Product Sales, despite an anticipated decline in the sum of Collaboration Revenue and Core Other Operating Income and Expense vs. the prior year. More details are provided below.

 

Core EPS

$3.50 to $3.70

 

Variations in performance between quarters can be expected to continue. The Company is unable to provide guidance and indications on a Reported basis because the Company cannot reliably forecast material elements of the Reported result, including the fair-value adjustments arising on acquisition-related liabilities, intangible-asset impairment charges and legal-settlement provisions. Please refer to the section Cautionary Statements Regarding Forward-Looking Statements at the end of this announcement.

 

FY 2019 indications

Outside of guidance, the Company provides its indications at CER for FY 2019 vs. the prior year:

 

-      The Company anticipates strong and sustainable Product Sales growth to be accompanied by operating leverage, leading to an improvement in profitability. In FY 2019, the cash performance is expected to be adversely impacted by a number of one-off payments relating to prior business-development transactions; a significant proportion of these payments was made in Q1 2019

 

-      As part of its long-term growth strategy, the Company remains committed to focusing on appropriate cash-generating and value-accretive collaboration and divestment transactions that reflect the ongoing productivity of the pipeline and the Company's increasing focus on its main therapy areas. The sum of Collaboration Revenue and Core Other Operating Income and Expense, however, is anticipated to decline vs. the prior year

 

-      Core Operating Expenses are expected to increase by a low single-digit percentage. Specific support for medicine launches and AstraZeneca in China historically has delivered compelling results and elements of that support will continue. The Company will retain flexibility in its investment approach

 

-      Core Operating Profit is anticipated to increase, ahead of Product Sales, by a mid-teens percentage vs. FY 2018

 

-      Capital expenditure is expected to be broadly stable and restructuring expenses are targeted to reduce vs. the prior year

 

-      A Core Tax Rate of 18-22% (FY 2018: 11%)

 

Currency impact

If foreign-exchange rates were to remain at the average of rates seen in the period January to March 2019, it is anticipated that there would be a low single-digit percentage adverse impact on Product Sales and Core EPS. In addition, the Company's foreign-exchange rate sensitivity analysis is contained within the operating and financial review.

 

Sustainability

AstraZeneca's sustainability ambition is founded on making science accessible and operating in a way that recognises the interconnection between the health of the business, people and the planet and that each of these impact one another. The Company's sustainability ambition is reinforced by its purpose and values, which are intrinsic to its business model and ensures that the delivery of its strategy broadens access to healthcare, minimises the environmental footprint of its activities and products of medicines and processes and ensures that all business activities are underpinned by the highest levels of ethics and transparency. A full update on the Company's sustainability progress is shown in the Sustainability section of this announcement.