Generics Hurt AZN Results - Analyst Blog

AstraZeneca's ( AZN ) fourth-quarter 2012 core earnings of $1.56 per American Depositary Share (ADS) beat the Zacks Consensus Estimate of $1.38. Earnings were up 1% (at constant exchange rates [CER]) year over year.

AstraZeneca's quarterly revenues fell 15% (at CER) year over year to $7.3 billion, primarily due to intense generic competition coupled with the disposal of Astra Tech and Aptium revenues. Revenues were above the Zacks Consensus Estimate of $7.1 billion.

Revenue for 2012 was $27.9 million, down 15 % (at CER) from a year ago. Earnings per share came in at $6.41, down 9% from $7.28 posted in 2011.

AstraZeneca's business in 2012 was negatively impacted by the patent expiry in markets and tough market conditions on a global basis. Tough market conditions coupled with generic competition to the company's key drugs hurt 2012 results.

All growth rates mentioned below are on a year-on-year basis and at CER.

The Quarter in Detail

U.S. revenues were down 23% in the fourth quarter of 2012 to $2.8 billion, primarily due to generic competition for Seroquel IR. The US healthcare reform negatively impacted fourth-quarter revenues and costs by $250 million.

Excluding Seroquel IR, revenue increased by 3.7%, including $84 million of revenues from the company's share of the Amylin diabetes portfolio.

Revenues declined 9% in the Rest of the World (RoW) to $4.5 billion. The decline was attributed to weakness in the Western European markets, which was down 16% due to loss of exclusivity on four products - Seroquel IR, Atacand, Nexium and Merrem.

Established ROW was down 14% primarily. Results were hurt by an 84% decline in Crestor sales in Canada as a result of generic competition. Revenues in Emerging Markets witnessed 6% growth in the reported quarter fuelled by growth in China, Saudi Arabia and Russia.

The drugs facing generic competition include Seroquel IR (down 92% to $94 million), Nexium (down 1% to $1.0 in billion), Arimidex (down 25% to $122 million), Casodex (down 19% to $112 million), Atacand (down 41% to $202 million) and Merrem (down 5% to $106 million).

However, drugs such as Iressa (up 10% to $160 million), Seloken (up 10% to $256 million) Onglyza (up 24% to $88 million), Symbicort (up 8% to $891 million) and Faslodex (up 20% to $175 million) performed well during the quarter.

Brilinta sales were $38 million in the fourth quarter of 2012 compared with $24 million in the third quarter of 2012.

Other Details

AstraZeneca's core gross margin remained flat at 81.6% in the fourth quarter of 2012 due to an unfavorable product mix and the absence of Aptium.

Core selling, general and administrative (SG&A) expenses went down 10% to $2.3 billion primarily due to lower selling and marketing costs (mainly in the developed markets).

During the quarter, core research and development (R&D) expenses amounted to $1.2 billion, reflecting a decrease of 28%. Core operating margin was 34.7% of revenue, up 90 basis points.

We note that in Oct 2012, AstraZeneca suspended its share repurchase program. The company has repurchased 57.8 million shares worth $2.6 billion during 2012. The company will not repurchase any shares in 2013 also.

2013 Outlook

2013 will be a challenging year for AstraZeneca. The company expects mid-to-high single digit decline in revenue in 2013 primarily due to Seroquel IR and Crestor (in Canada) along with the adverse impact from continued government interventions in price.

AstraZeneca carries a Zacks Rank #3 (Hold). However, other large cap pharma stocks, such as Bayer ( BAYRY ), Novo Nordisk ( NVO ) and Eli Lilly and Company ( LLY ) currently look more attractive with a Zacks Rank #2 (Buy).

ASTRAZENECA PLC (AZN): Free Stock Analysis Report

BAYER A G -ADR (BAYRY): Free Stock Analysis Report

LILLY ELI & CO (LLY): Free Stock Analysis Report

NOVO-NORDISK AS (NVO): 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 Nasdaq, Inc.

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

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