AstraZeneca earnings plunge, but new drugs help boost sales

Focus on R&D should reap rewards in the second half

Article updated: 26 July 2018 9:00am Author: Helal Miah

  • While earnings-per-share plummeted by 32%, the news was better than anticipated leading to a lift in the share price this morning
  • Despite a fall in revenue, there was better news for the pharmaceutical company’s product sales resulting in confirmed confidence of its full year guidance
  • We continue to recommend AstraZeneca as a ‘buy’ for low to medium risk investors

While group revenues fell by 1%, it is encouraging to see that product sales for AstraZeneca during the first half rose by 2%. This was driven by strong sales of new medicines which grew by 75%. The company’s drive for increased penetration into the emerging markets is also paying off as sales in the region grew by 14%. However, the well-known issue of generic competition and the loss of exclusivity on drugs such as Crestor have offset most of the increased sales of new drugs.

The earnings though took a big plunge; second half EPS fell by 32% as expenses rose and revenues, from non-product sales such as royalties, fell. However, this fall was not as bad as feared resulting in a lift to the share price at the open by a couple of percentage points. Management judged the first half performance to be good overall and have said that the second half should see a further improvement. This has given them confidence to stick with their full year guidance of core EPS of £3.30-$3.50 and believe that overall growth in the business will return this year.

AstraZeneca have built on their product pipeline after years of struggling with generic competition and this is paying off. They have recently been awarded approvals of two cancer drugs in Europe and America and now oncology has become their largest area of specialism, generating 29% of first half sales following sales growth of 42% during the period. We have long believed that the focus on R&D at the time of when Pascal Soriot took charge would soon enough begin to bring rewards and we are beginning to see that come through now. The pipeline remains attractive and the push into emerging markets will aid the turnaround in sales. These drivers have taken the share price to all-time highs but we believe that there is more to come. Added to that is the relatively attractive dividend which still makes the shares a ‘buy’ recommendation for income seekers willing to accept a low to medium level of risk.

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Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.