AstraZeneca (AZN) Beats On Q2 Earnings, Keeps 2016 View

AstraZeneca PLC (NYSE:AZN) reported second-quarter 2016 core earnings of 83 cents per American Depositary Share, comfortably beating the Zacks Consensus Estimate of 42 cents. Core earnings were, however, down 31% year over year at constant currency rates (CER).

Total revenue, on the other hand, was down 10% at CER to $5.6 billion in the second quarter.

Key growth platforms – Brilinta/Brilique, Diabetes, Respiratory, Emerging Markets and New Oncology – performed well in the quarter.

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

The Quarter in Detail

U.S. revenues declined 17% to almost $2 billion primarily due to the loss of exclusivity of Crestor in May 2016 and the ongoing impact of Nexium generic medicines. European markets witnessed a 2% decline in sales to $1.2 billion, reflecting the ongoing price erosion. Revenues from Emerging Markets were, however, up 9% to $1.5 billion in the reported quarter supported by strong growth in China (up 10% to $610 million).

As far as AstraZeneca’s core products are concerned, both Nexium and Crestor sales declined in the reported quarter.

Nexium recorded sales of $562 million (down 13%), with the U.S. contributing $163 million (down 36%) and Europe accounting for $67 million (down 3%). Moreover, Crestor sales declined 29% to $926 million, with the U.S. comprising $368 million (down 52%) and Europe contributing $226 million (down 1%).

Products that recorded growth in the quarter include Farxiga/Forxiga (up a substantial 65% to $211 million), Daliresp/Daxas (up 25% to $40 million), Bydureon (up 11% to $156 million), Pulmicort (up 6% to $239 million), Faslodex (up 23% to $211 million), Iressa (up 5% to $135 million) and Seloken/Toprol-XL (up 8% to $189 million).

Brilinta/Brilique sales were $214 million in the reported quarter, up 51%. The drug performed well in all the key markets.

Other Details

AstraZeneca’s core gross margin was down 1.5 percentage points to 81.5%. Core selling, general and administrative (SG&A) expenses decreased 3% to $2.1 billion.

During the quarter, core research and development (R&D) expenses increased 3% to $1.4 billion. AstraZeneca still expects core R&D expenses to remain flat in 2016.

2016 Outlook

AstraZeneca has reiterated its outlook for 2016. The company continues to expect both total revenue and core earnings to decline in the low-to-mid single-digit percentage range in 2016. The guidance takes into account dilution from the Acerta Pharma and ZS Pharma acquisitions that were announced in 2015. Based on average exchange rates in the first half of the year, currency movements are expected to minimally impact the top line in 2016.

Meanwhile, externalization revenues are expected to be above the 2015 level, including an increase in recurring milestone and royalty income from agreements signed in the past.

Our Take

AstraZeneca’s second-quarter 2016 results were encouraging, with the company beating both the top- and bottom-line estimates. The company has been quite active on the acquisition and partnering front, and expects to continue to pursuing strategically profitable deals.

A number of regulatory decisions, submissions and key data readouts are expected in 2016.

However, we remain concern about the declining sales of Nexium and Crestor due to generic competition.

AstraZeneca is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Innoviva, Inc. (NASDAQ:INVA) , Nektar Therapeutics (NASDAQ:NKTR) and ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) , each sporting a Zacks Rank #1 (Strong Buy).

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