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AstraZeneca disappoints with Q1 sales but ‘remains on track’ to hit full-year growth guidance

The FTSE 100-drugs giant expects product sales, which have been in decline for a while now, to return to growth this year
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The effects of loss of patents on Crestor and Seroquel will “recede materially” in H2

UK drugs giant AstraZeneca PLC (LON:AZN) disappointed with first-quarter sales figures but said it remains on track to hit its full-year growth targets.

Shares fell 2.4% to £52.16 in morning trading in London.

READ: Astra sells off rights to Seroquel

The FTSE 100-group has seen its product sales edge lower in recent years due to the loss of patents on its Crestor (statin) and Seroquel (bipolar) blockbuster drugs which had traditionally propped up the top line.

Astra looked to have reached the bottom of that cycle in the final quarter of 2017 when product sales edged higher.

But they fell 2% to US$5.0bn in the three months ended March 31, with analysts noting that declining Crestor sales in Japan and the EU were a greater drag than the previous quarter. The market had been expecting sales to at least be flat in the quarter.

Full-year guidance reiterated

Core earnings per share halved to US$0.48, largely due to the investments behind new drug launches, although the figure was still below what analysts had pencilled in.

Total revenue slipped 9% at constant exchange rates to £5.2bn, reflecting a sharp decline in externalisation, or joint venture, deals with other pharma groups.

The drugmaker expects the effects of Crestor patent expiries to “recede materially” in the second half of the year.

As a result, Astra said its “plans remain on track”, with the company continuing to guide for a “low single-digit percentage increase” in product sales growth this year, weighted towards the second half.

“Encouraging launches and strong performances from our newer generation of medicines made a significant contribution to product sales in the quarter, paving the way for our anticipated return to growth in 2018,” said chief executive Pascal Soriot.

“The performance was in line with our expectations and guidance for the year is unchanged.”

New drugs perform well

Oncology will likely be the division leading the charge, with sales in that arm of the business jumping by a third to US$1.2bn.

Sales of Astra’s new cancer drugs, Lynparza and Tagrisso, almost doubled to a combined US$450mln, driven by various new regulatory approvals.

The firm’s Brilinta heart attack treatment and Farxiga diabetes drug also performed well, with sales climbing 24% and 44% respectively.

In terms of regions, China was a particularly strong performer with quarterly sales increasing by 22% to just over US$1bn for the first time.

‘Strong underlying performance’

Liberum analyst Roger Franklin wrote: “Despite the headline miss on product sales and Core EPS, we believe these results are a reasonably solid set of numbers.

“The 1% product sales miss was driven entirely by genericising Crestor whilst the key new products beat.

“The 10% miss on pre-R&D trading profit was driven by higher than expected selling and general administrative costs which rose 6% at constant exchange rates versus the reiterated full-year guidance for low-mid single digits.”

-- Updates for share price and analyst comment --

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