AstraZeneca PLC Another strong top-line performance, with operating leverage supporting compelling growth in earnings

AstraZeneca PLC (LON:AZN), today announced 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.

Pascal Soriot, AstraZeneca PLC 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 Lynparza continued 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)