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AstraZeneca - sales surge as strategy pays dividends

Nicholas Hyett, Equity Analyst | 14 February 2020 | A A A
AstraZeneca - sales surge as strategy pays dividends

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AstraZeneca plc Ordinary US$0.25

Sell: 10,790.00 | Buy: 10,792.00 | Change -20.00 (-0.19%)
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Rapid sales growth from new oncology and cardiovascular drugs saw full year revenues rise 13% to $24.4bn. Core operating profit also rose 13% to $6.4bn.

A final dividend of $1.90 takes the full year dividend per share to $2.80, flat year on-year.

The shares were broadly flat 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.

Astra's other strategic bet, a collaboration with oncology specialist Daiichi Sankyo, also seems to be paying off. The high risk deal was pricey and focused on a drug, Enhertu, which hadn't been approved in any markets. Since the deal was signed we've seen positive trial results and the drugs been approved for certain breast cancers in the US. A great result from a drug which could easily have fallen at the final hurdle, but then that's an occupational hazard in 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 sizeable debt pile means significant dividend growth could be some years away. With a current yield of 2.8% that might be a bit of a disappointment.

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Full Year Results (constant exchange rates)

Product sales rose 15% year-on-year to $23.6bn. That reflects 47% growth in Oncology sales driven by recently launched treatments Tagrisso, Imfinzi and Lynparza partly offset by declines in more established drugs. CVRM, also benefitted from new product launches with total sales up 6% while Respiratory saw Pulmicort sales surge in emerging markets with overall sales up 13%. Sales of legacy drugs including Nexium and Crestor continue to decline steadily.

Collaboration revenue, generated when Astra sells part of its rights to a drug, fell 20% year-on-year to $819m.

Total Core operating costs rose 7% to $14.7bn, driven by investment in the launches of new medicines and in Emerging Markets. Core R&D spending rose 4% to $5.3bn.

The group continues to receive regulatory approvals across all three treatment areas, with eight regulatory approvals during the year. There are currently 144 clinical projects in the group's pipeline.

Net debt declined 8.5% during the year to $11.9bn, with $1.3bn of free cash up 4.5% year-on-year.

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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.