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    AZN   GB0009895292

ASTRAZENECA PLC

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AstraZeneca profits heading south as patent losses bite

02/06/2014 | 06:19am EDT

LONDON (Reuters) - AstraZeneca (>> AstraZeneca plc) expects earnings to keep falling in 2014 as generic competition to its popular heartburn and ulcer drug Nexium takes a big bite out of U.S. profits from late May.

LONDON (Reuters) - AstraZeneca (>> AstraZeneca plc) expects earnings to keep falling in 2014 as generic competition to its popular heartburn and ulcer drug Nexium takes a big bite out of U.S. profits from late May.

The British drugmaker said on Thursday that group sales this year were likely to decline by a low-to-mid single digit percentage figure, with earnings per share falling "in the teens", due to the loss of such profitable medicines.

The decline was steeper than investors expected and the shares fell 3 percent by 1045 GMT. Analysts had been forecasting 2014 sales to fall by 1.5 percent and earnings by 9.4 percent, according to Thomson Reuters data.

"In the near term these headwinds will remain challenging, however I am confident that we can return to growth faster than anticipated," said Chief Executive Pascal Soriot.

He reiterated a prediction that 2017 revenue would be broadly in line with 2013 and said a restructuring programme had now been expanded to deliver a total $1.1 billion (675.1 million pounds) of annual benefits.

Despite the tough backdrop, AstraZeneca has decided to keep investing in priority areas such as diabetes, where its presence has been bolstered by a recent $4 billion deal to take full control of an alliance with Bristol-Myers Squibb (>> Bristol-Myers Squibb Co).

But the diabetes business is highly competitive and AstraZeneca had to take a $1.76 billion impairment charge due to weak sales of the medicine Bydureon.

AstraZeneca is also throwing resources behind its new heart drug Brilinta, which has got off to a slow start but is seen as a long-term winner. The drug sold $92 million in the fourth quarter.

Brilinta's prospects have become less certain, however, since it was revealed in October that U.S. authorities were looking into a major clinical trial called PLATO that was used to win marketing approval.

Soriot said he was confident of the integrity of the study but acknowledged that media attention surrounding the case had hit demand for the blood-thinning pill.

"It is creating uncertainty and it is impacting us," Soriot told reporters. "We will stay focused on promoting this product and, hopefully, as soon as the investigation concludes we can see some growth again."

Symbicort for asthma and smoker's cough was a bright spot with sales up 11 percent at $976 million in the quarter as it took market share from GlaxoSmithKline's (>> GlaxoSmithKline plc) Advair.

Overall sales in the fourth quarter of 2013 fell 6 percent to $6.84 billion, generating "core" earnings, which exclude certain items, down 28 percent at $1.23 a share.

Industry analysts had, on average, forecast sales in the quarter of $6.88 billion and earnings of $1.16 a share, according to Thomson Reuters.

TURNAROUND A LONG HAUL

Soriot, who has been in the job for just over a year, has previously warned that turning around AstraZeneca will take several years - but he is making progress in rebuilding a pipeline of new medicines to replace those going off patent.

This has involved striking a number of bolt-on deals and accelerating in-house research programmes, with the result that the group is now more focused on developing internal projects than buying in experimental medicines from other firms.

"AstraZeneca's long-term future looks increasingly secure, but the near-term outlook is increasingly bleak," said Berenberg analyst Alistair Campbell.

The company now has 11 new-drug programmes in late-stage Phase III testing, almost double the number a year ago, and 19 candidates that could start late-stage Phase III trials in 2014 or 2015.

Hopes are particularly high for its cancer research, where it has started trials for immunotherapy combination treatments for which the first results are anticipated in 2014/15.

AstraZeneca is behind the likes of Bristol-Myers, Roche (>> Roche Holding Ltd.) and Merck & Co (>> Merck & Co., Inc.) in the race to develop immunotherapies - a hot new area of cancer research - but it is betting on combination treatments to help it to catch up.

Soriot put a floor under the group's decline last month by predicting 2017 revenue roughly in line with 2013, while stopping short of giving a medium-term target for earnings.

Britain's second-biggest drugmaker is already suffering from generic competition to its antipsychotic Seroquel, while top-selling Crestor, for high cholesterol, faces U.S. competition from cheap copycat drugs in 2016.

Loss of Nexium patent protection in the United States from the end of May 2014 comes as a further heavy blow.

The patent expiries are putting downward pressure on AstraZeneca's sales at a time when many of its rivals have put their biggest patent losses behind them.

(Editing by Louise Ireland)

By Ben Hirschler


© Reuters 2014
Stocks mentioned in the article
ChangeLast1st jan.
ASTRAZENECA PLC 0.25% 8480 Delayed Quote.15.78%
BRISTOL-MYERS SQUIBB COMPANY 0.56% 68.34 Delayed Quote.10.17%
GLAXOSMITHKLINE PLC 0.45% 1416 Delayed Quote.5.51%
MERCK & CO., INC. 1.32% 77.54 Delayed Quote.-5.21%
ROCHE HOLDING AG 1.24% 347.3 Delayed Quote.12.39%
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Financials (USD)
Sales 2021 31 752 M - -
Net income 2021 4 669 M - -
Net Debt 2021 10 816 M - -
P/E ratio 2021 33,0x
Yield 2021 2,42%
Capitalization 181 B 181 B -
EV / Sales 2021 6,03x
EV / Sales 2022 5,25x
Nbr of Employees 76 100
Free-Float 96,4%
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Mean consensus OUTPERFORM
Number of Analysts 27
Last Close Price 116,57 $
Average target price 132,19 $
Spread / Average Target 13,4%
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Managers and Directors
Pascal Soriot Chief Executive Officer & Executive Director
Marc Pierre Jean Dunoyer Chief Financial Officer & Executive Director
Leif Valdemar Johansson Non-Executive Chairman
Menelas N. Pangalos EVP-Biopharmaceuticals Research & Development
Pam P. Cheng Executive VP-Operations & Information Technology
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