AstraZeneca may not be the FTSE’s heaviest faller this morning (that prize goes to JMAT). However, by virtue of its heavyweight status (2.9% weighting) it is inflicting the most damage, taking almost 6pts off the index.
This comes after Q1 results missed consensus expectations; revenues by a shade, profits by rather more, as product sales remained under pressure and costs rose.
Revenues fell 4% to $5.18bn (-9% at constant FX), despite product Sales up 3% to $5bn (-2% at constant FX), coming in just below the $5.2bn consensus. However, it highlights; 1) a flattering 5% FX tailwind, and; 2) a significant plunge (-66%) in “externalisation revenues” which include proceeds from licensing & partnership deals (royalties, milestones) booked as sales.
The generic erosion of sales of its blockbuster ($1bn sales per year) statin Crestor was also greater than expected (-38%) hurting the CVRM franchise (-8%), Respiratory sales were flat, although this was offset to some extent by strong Oncology (+39%), sales in China (+31%) and Emerging Markets +13% we well as new treatment launches across multiple therapies.
The real disappointment, however, comes from a 9% miss for Core Earnings ($0.48 per share versus $0.57 expectations), down circa 50% on Q1 last year. FX moves also increased most of the cost base (COGS, Distribution, SG&A), fuelled by new launches, but this easily overpowered efficiency savings in R&D to hammer margins down through the P&L.
Even if management says trading is in-line, and left full year sales and profits guidance unchanged, investors are sceptical enough about whether sales growth can recover over the course of the year (“H2 weighted”) to send the shares 2-3% lower. There’s a lot riding on recent launches to get product sales back to growth. Q2 and Q3 could thus be make or break.
