) first-quarter 2014 core earnings of $1.17 per American
Depositary Share (ADS) missed the Zacks Consensus Estimate of
$1.20. Earnings were also down 11% (at constant exchange rates or
CER) year over year reflecting higher operating expenses.
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AstraZeneca's quarterly revenues increased 3% (at CER) year over
year to $6.4 billion. Revenues were above the Zacks Consensus
Estimate of $6.3 billion. Revenues benefited from strong
performance at key growth platforms (Brilinta, diabetes,
respiratory, Emerging Markets and Japan).
All growth rates mentioned below are on a year-on-year basis and
The Quarter in Detail
U.S. revenues were up 3% in the first quarter to $2.5 billion,
reflecting improvement in Crestor sales and diabetes revenues.
Revenues were up 3% in Rest of the World (RoW) to $3.9 billion.
The increase was attributed to 11% growth in Emerging Markets,
driven by strong sales in China (up 22%).
European markets were down 4% primarily due to generic erosion of
Seroquel IR. Established RoW revenues were up 2%. While revenues
in Japan increased 13%, revenues continued to be hurt by weak
Crestor sales in Australia.
Although AstraZeneca is now almost over with its patent cliff, it
still suffered a $150 million impact on revenues in the first
quarter of 2014. Nexium, which generated more than 15% of
AstraZeneca's total revenues in 2013, is expected to face generic
competition by the end of May. The company expects Nexium sales
to decline in 2014.
However, we are impressed with drugs such as Iressa (up 5% to
$169 million), Onglyza (up 81% to $162 million), Symbicort (up
13% to $928 million), Pulmicort (up 13% to $263 million),
Bydureon (up 196% to $80 million), Byetta (up 86% to $78 million)
and Faslodex (up 11% to $172 million), which performed well
during the quarter.
A key area of focus, Brilinta sales were $99 million in the first
quarter of 2014 compared with $92 million in the preceding
quarter. Although Brilinta performed well in Europe and the
emerging markets, overall revenue growth rates were damped by
ongoing investigation by the Department of Justice related to the
PLATO trial, based on which the drug was approved.
AstraZeneca's core gross margin decreased 0.7 percentage points
to 81.4% in the first quarter of 2014. Core selling, general and
administrative (SG&A) expenses went up 14% to $2.3 billion,
primarily due to investments in Emerging Markets, diabetes
franchise and Farxiga launch.
During the quarter, core research and development (R&D)
expenses amounted to $1.1 billion, up 13% reflecting higher
investments in pipeline.
AstraZeneca continues to expect 2014 revenues to decline in the
low-to-mid single digits. The Zacks Consensus Estimate for 2014
stood at $25.1 billion, representing a 2.3% decline on a
The company expects core earnings to decline in the teens. The
pre-earnings 2014 Zacks Consensus Estimate stood at $4.33 per
share, representing a 14.3% decline on a year-over-year basis.
AstraZeneca's first quarter results were mixed with earnings
coming in below our expectations while revenues beating the same.
Generic competition has adversely impacted AstraZeneca's revenues
over the past few quarters and is expected to do so in the coming
years (Nexium and Crestor). This has put significant pressure on
the company. AstraZeneca is resorting to cost-cutting initiatives
to drive the bottom line in the face of genericization.
We are nonetheless pleased with recent approvals at AstraZeneca.
The approvals of Forxiga (type II diabetes), Myalept
(complications of leptin deficiency, in addition to diet, in
patients with congenital generalized or acquired generalized
lipodystrophy) in the U.S. and Xigduo (type II diabetes) in the
EU were major milestones for the company. These new product
approvals will boost the top line, thereby driving growth.
Meanwhile, we are also positive on AstraZeneca's efforts to
advance its pipeline. Some of the upcoming events that can act as
a catalyst for the stock in the near term are regulatory decision
on Epanova (hypertriglyceridaemia) expected by May 5, 2014, and
top-line phase III data on brodalumab (psoriasis) expected in the
second quarter of 2014.
Currently, rumors are rife with Sunday Times recently reporting a
potential acquisition on the cards. It is believed that
AstraZeneca maybe taken over by
) in a potential buyout. AstraZeneca's shares have gained 8.7%
AstraZeneca carries a Zacks Rank #3 (Hold). Some better-ranked
stocks in the health care sector include
Johnson & Johnson
). Both hold a Zacks Rank #2 (Buy).