AstraZeneca Tops Analysts Expectations, Warns of Sliding Sales in 2013

Andrew Klips  |

AstraZeneca PLC (AZN) delivered its earnings for the fourth quarter and full year 2012 Thursday, showing a decline in revenue while also warning that the it expects the trend to continue in 2013 as it faces challenges related to losing patent protection on several drugs.

The London-based drug maker reported a 16 percent drop in revenue to $7.28 billion in the latest quarter from $8.66 billion in the year prior quarter.  Operating profit dropped 3 percent from $2.17 billion, or $1.61 per share, in Q4 2011 to $1.96 billion, or $1.56 per share, in Q4 2012.

The declining figures still beat Wall Street expectations of $7.20 billion in sales and earnings per share of $1.35.

“Our performance in 2012 reflects a period of significant patent expiry and tough market conditions globally,” said Pascal Soriot, Chief Executive Officer in a corporate statement.

The company brought Soriot, a former executive at Roche Holdings AG (RHHBY), in to run the company late in 2012 to try and help the struggling company who is facing losing patent protection on about half of its marketed drugs over the next five years, including blockbuster anti-cholesterol drug Crestor in 2016.

In December, the Court of Appeals for the Federal Circuit upheld the decision of the District Court, District of Delaware; in finding the patents protecting Crestor were enforceable until expiration in three years.  The decision temporarily fended off Abbreviated New Drug Applications for generics by many companies, including Teva Pharmaceuticals (TEVA) and Sandoz, the generic drug division of Novartis AG (NVS).

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So-called “core” EPS was up 1 percent as a result of lower operating costs and a favorable $230 million adjustment to deferred tax balances following substantive enactment of a reduction in the Swedish corporation tax rate, according to the company.

Last March, AstraZeneca lost protection on its anti-psychotic drug Seroquel IR, causing total sales to crater by 23 percent in the U.S. during the fourth quarter.  Excluding Seroquel IR, US sales grew by 3.7 percent in Q4, including $84 million in new sales realized from the company’s stake in Amylin’s diabetes portfolio.  Apropos, Bristol-Myers Squibb (BMY) acquired Amylin in 2012.

Further, AstraZeneca lost patent protection on Atacand, Nexium and Merrem in other parts of the world last year, accounting for about 85 percent of revenue declines.  Nexium, it’s third biggest selling drug, loses patent protection in the U.S. in 2014.

Total revenue for countries outside the U.S. sank by 9 percent in the fourth quarter.

For the full year 2012, operating profit fell to $10.43 billion, or $6.41 per share, on sales of $27.97 billion, compared to $33.59 billion in revenue and $13.17 billion, or $7.28 per share, in profit in 2011.

Looking ahead, AstraZeneca said it expects a “mid-to-high single digit percentage decline” in revenue for 2013. Because operating costs are expected to be slightly higher this year, earnings per share is forecast to decline more than revenue.

The company is amid a multi-year restructuring plan that began in 2009.  Soriot is expected to provide updates on the strategy at a meeting with investors on March 21.

Shares of AZN have cruised ahead by about 47 percent since June lows of $34.  Shares, which closed Wednesday at $49.81, will likely be in focus on Thursday based on the earnings report.

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