AstraZeneca Misses Earnings But Up on Takeover Rumors - Analyst Blog

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AstraZeneca 's ( AZN ) 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.

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 at CER.

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.

Other Details

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.

Outlook Maintained

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 year-over-year basis.  

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.  

Our Take

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 Pfizer ( PFE ) in a potential buyout. AstraZeneca's shares have gained 8.7% since then.

AstraZeneca carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Allergan Inc. ( AGN ) and Johnson & Johnson ( JNJ ). Both hold a Zacks Rank #2 (Buy).



ALLERGAN INC (AGN): Free Stock Analysis Report

ASTRAZENECA PLC (AZN): Free Stock Analysis Report

JOHNSON & JOHNS (JNJ): Free Stock Analysis Report

PFIZER INC (PFE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ADS , AGN , AZN , JNJ , PFE

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