A fall in profits leads to a dip in shares as AstraZeneca updates the market.
AstraZeneca maintains guidance despite disappointing first quarter
- Shares dip almost 3% as AstraZeneca reports a 4% fall in revenue
- Despite a fall in profit, the group remains on track for its full year guidance
- The Share Centre maintains its ‘buy’ recommendation for medium-risk investors
AstraZeneca’s first quarter trading update wasn’t too pleasing for investors as revenues fell by 4% to $5.2bn and core operating profits fell by 46% to $896m. These falls were more than expected, especially the profits which led the market to respond with a near 3% dip in shares during this morning’s early trading.
The key culprit was the sales of their cholesterol Crestor drug, which has been a big victim to generic competition. During this quarter the rate of decline was even more than expected, generating just $389m instead of the near $450m that was priced in.
The profit fall was also partly due to the investment in launches of new products and the timing of divestments. However, progress was made in other areas such as efficiency saving in R&D as well as good progress on the pipeline of new drugs coming through. New medicines contributed more than $400m in additional sales and its expansion into China is paying off well where sales are picking up faster than expected; now making emerging markets the largest in terms of sales as a region.
Crestor and other blockbuster drugs will continue to face declining sales, but the impact should lessen in the second half and in the short to medium-term horizon as newer drugs come through.
Management still believe that 2018 should be the transition year where overall sales upturn again. They have therefore maintained their full year guidance they gave earlier. We are of the opinion that Pascal Soriot’s focus some years back on new drug development is showing signs of promise and we maintain our ‘buy’ recommendation for investors seeking income and willing to accept a medium level of risk.
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