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AstraZeneca first-quarter profits double as product sales revival continues but cash still a worry

The oncology portfolio has helped to turn around Astra’s product sales, which for years had been falling as key drugs went off-patent
AstraZeneca has debts of more than US$21bn

Pre-tax profits at AstraZeneca PLC (LON:AZN) surged in the first quarter of 2019 thanks to continued growth in product sales.

The FTSE 100-pharma giant has seen billions wiped from its top line in recent years as some of its blockbuster drugs – such as the statin, Crestor, and schizophrenia treatment, Seroquel – have lost their exclusivity.

READ: Astra launches biggest cash call of the year to fund Japanese cancer deal

But it has reinvented its pipeline of late, and a wave of new drugs, including much-hyped cancer treatments Tagrisso and Lynparza, helped it to post its first annual rise in product sales for almost a decade last year.

As expected, sales have continued to grow, climbing 10% to US$5.47bn in the three months ended 31 March (Q1 18: US$4.99bn). At constant exchange rates, sales were up 14%.

Oncology driving turnaround

Tagrisso is now the company’s top-selling drug, achieving sales of US$630mln in the quarter, almost double what it raked in this time last year.

A host of other cancer drugs also made big contributions, as did its Symbicort, although sales of the asthma inhaler fell slightly year-on-year as Astra was forced to trim prices.

The strong sales growth filtered down to the bottom line, with pre-tax profits doubling to US$758mln in the period (Q1 18: US$374mln), helped by a sharp rise in margins to 20% (Q1 18: 13%).

Emerging markets growth

“Our 14% product sales growth in the quarter reflected the success of our new medicines and Emerging Markets,” said chief executive pascal Soriot.

“In Oncology, Tagrisso, Imfinzi and Lynparza continued to do well and, in BioPharma, Farxiga, Brilinta and Fasenra also grew strongly.

“Emerging Markets, our largest sales region, delivered an outstanding performance with a 22% growth rate; all of its sub-regions grew strongly, including China at 28%.”

He added: “Together with this encouraging financial start to the year, our highly-productive and sustainable pipeline continued to deliver, notably with a regulatory approval for Lynparza in the EU for the treatment of metastatic breast cancer and approvals of Farxiga in type-1 diabetes.”

Cash still a worry

AstraZeneca has also been criticised for its inability to convert the top-line momentum into cold hard cash.

Net cash outflow from operating activities jumped to US$387mln in the quarter (Q1 18: US$140mln), partly as a result of increased tax payments. As a result, the amount of cash the business has on hand fell to US$4.14bn (Q1 18: US$4.83bn).

As for the rest of the year, the Anglo-Swedish company expects its cash performance to be “adversely impacted” by a number of one-off payments related to “prior business-development transactions”.

UBS analysts recently claimed that Astra would have to be generating free cash flow of more than US$8bn by 2023 to justify its current valuation, “a number we can’t see AZN delivering”.

With net debt rising to US$16.27bn come the end of March (Q1 18: US$15.42bn), the cash outflow will no doubt be of concern.

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