For the first nine months of 2022, AstraZeneca reported revenue growth of 37% to $33.1bn. This ignores the effects of currency movements.
The sales uplift reflects growth from all disease areas and also includes a $1.7bn contribution from medicines acquired with Alexion, a deal that completed near the beginning of the third quarter. Revenue from AZN's Vaxzevria covid jab was down 16% to $1.7bn.
Underlying gross margins were up six percentage points to 81%, as AstraZeneca moves away from its earlier low margin contracts on Vaxzevria. The gross margin also benefited from the growth in speciality medicines.
Underlying operating profit increased by 63% to $10.7bn. reflecting not just the gross margin uplift but also growth rates in other costs that were substantially lower than the pace of revenue increases.
Free cash flow was up 178% to $6.1bn. Net debt was broadly flat at $24.5bn.
Full year revenue guidance of 'low twenties percentage' growth is unchanged. But underlying earnings per share guidance has been pushed up to a high twenties to low thirties percentage from a previously mid-to-high twenties expectation.
The shares were up 1.4% following the announcement.
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Our View
AstraZeneca is seeing its science backed high value speciality medicines drive very strong growth indeed. Excluding COVID-19 vaccines and therapies, it now has 11 blockbuster medicines generating annual sales of at least $1bn each.
Its cancer treatments include novel first in class therapies such as Lynparza, which is used for hard to treat cancers. Cancer treatments (about a third of sales) are a cornerstone of Astra's offering and sales have grown 24% this year so far. Often these drugs can maintain high growth levels for many years, as patient access improves, approvals are gained in new markets, and clinical trials prove their efficacy in additional diseases.
Biopharmaceuticals are currently the biggest contributor to revenue. These include the Vaccines and Immune Therapies groups which house Astra's COVID-19 medicines. Astra's still very much riding the COVID wave. Vaccine sales have fallen, but are generating higher profits than they were. And the launch of Evusheld, which treats some of the most vulnerable sufferers of COVID-19 has seen it generate $1.5bn of revenues in the first 9 months of 2022 from a standing start.
The Alexion acquisition brought rare disease treatments into the Astra fold, a fundamentally attractive area of the pharmaceutical market with high margins, shorter development cycles, and longer periods of exclusivity. The proposed acquisition of LogicBio announced in October 2022, although relatively small, seems highly complementary to Alexion's efforts to pioneer next generation medicines to treat rare genetic diseases.
Drug companies deserve to be well rewarded for focussing their research budgets on these neglected patient populations. However, drug pricing is a popular political bargaining chip and we can't rule out the possibility of unfavourable legislation.
Net debt's sitting at 2.1 times this year's forecasted cash profits, which isn't unmanageable. But with interest rates on the rise, we'd like to see debt levels come down. Especially given other demands on cash resources. The group's likely to put more money into research and development, as recent clinical results give it the confidence to launch additional late-stage clinical trials.
Research and Development is the engine of Astra's long-term growth and it's good at it. Since the half year update Astra has enjoyed 19 Major regulatory approvals and there's likely to be more to come, with 18 Phase III read-outs expected in 2023. But this is a risky endeavour and there are no guarantees of Astra's success.
For now however, Astra is generating strong cash flows from its existing portfolio of marketed medicines. This also supports the modest dividend yield with analyst forecasts suggesting next year's dividend payments are more than twice covered by free cash flow. Given the recent strong financial and clinical progress, it's no surprise that the valuation is not in bargain territory compared to the long-term average. But with earnings per share forecast by analysts to more than double between 2022 and 2024 we don't think that this position is overly demanding, as long as expectations are met of which there are no guarantees.
AstraZeneca key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
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