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AstraZeneca - Oncology and Emerging Markets boost sales

Nicholas Hyett | 24 October 2019 | A A A
AstraZeneca - Oncology and Emerging Markets boost sales

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AstraZeneca plc Ordinary US$0.25

Sell: 10,756.00 | Buy: 10,760.00 | Change -18.00 (-0.17%)
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AstraZeneca has upgraded full year sales guidance following a strong third quarter, with total revenue up 22% at $6.4bn. Product sales rose 18% to $6.1bn, with core operating profits up 41% to $1.9bn.

Growth was broad-based, spread across all regions, although were particularly strong in Emerging Markets, and the three main therapy areas.

The shares rose 3.4% in early trading.

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Our View

AstraZeneca has turned a corner. The long awaited new drugs are out of the labs and into the hands of sales reps - who seem to be doing a sterling job.

The group's portfolio of new Oncology drugs has been a particular success story, and it's a trend that looks set to continue with a raft of new cancer treatments scheduled for trial results or regulatory opinions over the coming year.

The decision to expand the geographic footprint is bearing fruit too. An increased presence in Emerging Markets and Japan means Astra's been able to make the most of new drugs as and when they arrive, while boosting sales of more mature treatments. We've been particularly impressed with relatively mature asthma treatment Pulmicort's growth in Emerging Markets.

However, Astra clearly felt the pipeline needed another shot in the arm, hence the collaboration with oncology specialist Daiichi Sankyo agreed at the end of last year. It's a high risk bet. The deal's pricey and the drug in question hasn't been approved in any markets, so there's always the risk it falls at the final hurdle and ends up being worth nothing at all. But then that's a fundamental part of the pharmaceutical industry.

Despite the green shoots, organic free cash flow hasn't been strong enough to support the dividend. That means Astra will be relying on debt to fund the dividend for a little bit longer at least. While that's clearly unsustainable in the long run, if all goes to plan shareholders will applaud the decision to hold the dividend steady during the lean times.

It's worth bearing in mind though that the need to deal with the mounting debt pile means significant dividend growth could be years away. With a current yield of 3.1% that might be a bit of a disappointment.

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Third Quarter Results (constant exchange rates)

Product sales growth was driven by a strong performance in Oncology, which saw sales rise 48% compared to the same quarter last year, to $2.3bn. That reflects the very strong results from newly launched drugs Tagrisso, Lynparza, and Imfinzi which now account for almost 70% of total Oncology sales.

Cardiovascular Medicine posted sales of $1.7bn, up 6% year-on-year, driven by growth in Brilinta which more than offset declines in more mature treatments. Respiratory saw sales rise 18% to $1.3bn as the group successfully increased sales of Pulmicort in Emerging Markets.

The Other Medicines portfolio, which includes more mature drugs saw sales decline by 11% to $731m.

Collaboration revenue for the quarter hit $274m.

Operating expenses are up 15% year-to-date, with core operating expenses up 6%. Core research and development expenses rose 4%.

The pipeline delivered impressive results during the quarter, with four regulatory approvals and further positive trial results for the groups new cancer drugs. Astra expects further regulatory decisions in the fourth quarter.

The group finished the quarter with net debt of $13.3bn, compared to $16.2bn this time last year.

Astra now expects full year product sales to grow by a low to mid-teens percentage (previously low double-digit percentage) with core earnings per share guidance unchanged.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.