AstraZeneca's first-half results made grim reading for investors expecting to see an imminent upturn in the fortunes of the pharmaceutical giant. Still without a permanent chief executive, the results highlighted how a change of strategy is urgently needed; for instance, more than 70 per cent of the revenue decline seen during the half was due to products losing their exclusivity, particularly the loss of anti-psychotic drug Seroquel. Moreover, AstraZeneca is proving to be particularly vulnerable to the headwinds that have affected the entire industry as healthcare enters a phase of acute austerity.
The main problem with patent expiries is that they served to emphasise the weakness in individual markets that are affected by austerity measures. For example, the group's sales in the two biggest 'white pill' developed markets, the US and Europe, were particularly weak with both regions registering 20 per cent declines to $5.3bn and $3.4bn (£2.2bn), respectively, after a tough round of medicines price cuts. However, it was the decline in Seroquel revenues after the remaining patents expired that proved to be the single biggest factor behind the overall sales fall. In addition, supply problems caused by a breakdown in production at a factory in Sweden impacted second-quarter sales. The problems have been largely resolved but a backlog of orders must first be cleared before normal service resumes.
The group booked restructuring costs of $907m, more than three times higher than in the same period last year, as management tried to find the savings needed to offset the attrition rate and guarantee a rising dividend over the entire investment cycle. Guidance is for total restructuring costs to hit $2.1bn this year with the aim of saving $1.6bn annually by 2014. The savings are a big reason why management left its guidance for core EPS for the full-year unchanged at between 585¢ and 615¢. But this still represents a low to mid-teen decline in full-year revenues.
Broker Shore Capital expects full-year adjusted EPS to fall 20 per cent from 733¢ to 591¢ and is forecasting a flat performance in 2013.
ASTRAZENECA (AZN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,870p | MARKET VALUE: | £35.9bn | |
| TOUCH: | 2,870-2,871p | 12-MONTH HIGH: | 3,116p | LOW: 2,453p |
| DIVIDEND YIELD: | 6.4% | PE RATIO: | 7 | |
| NET ASSET VALUE: | 1,759¢* | NET DEBT: | 7% | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 16.7 | 6.14 | 361 | 51.9 |
| 2012 | 14.0 | 3.81 | 255 | 58.1 |
| % change | -16 | -38 | -29 | +12 |
Ex-div: 8 Aug Payment: 10 Sep *Includes intangible assets of $23.5bn, or 1,876¢ a share £1=US$1.55 | ||||
