AstraZeneca hit by generic drugs and Crestor shortfall
LONDON (Reuters) - AstraZeneca's sales fell by a bigger-than-expected 13 percent in the first quarter as patent expiries took a heavy toll, underscoring the turnaround challenge facing Britain's second-largest drugmaker.
Much of the damage was caused by loss of exclusivity on antipsychotic medicine Seroquel and heart drug Atacand in many markets.
But the company's top-selling cholesterol fighter Crestor was also hit by generic competition in Canada, pricing pressure in Australia and worse-than-expected sales in the United States.
The poor performance suggests new Chief Executive Pascal Soriot has his work cut out to reverse the fortunes of the struggling drugmaker, despite some tentative signs of improvement in a few growth areas.
Demand for Brilinta - a new heart drug for which AstraZeneca has high hopes - picked up modestly to $51 million from $38 million in the last quarter of 2012.
Emerging markets were also a relative bright spot, with sales up 9 percent at constant currencies, largely driven by a 21 percent increase in China. Sales of a number of diabetes products, however, were lower than analysts had hoped.
"While it may be premature to judge the performance of Astra's growth platforms at this early juncture, some investors may be disappointed," said Berenberg analyst Alistair Campbell.
AstraZeneca reiterated its expectation for a mid-to-high single digit percentage fall in revenue this year, with earnings declining significantly more due to increased operating costs.
Sales in the quarter of $6.39 billion generated "core" pre-tax profit, which excludes certain items, down 25 percent at $2.23 billion and earnings down the same amount at $1.41 a share, the company said on Thursday.
Analysts had, on average, forecast sales of $6.51 billion and earnings of $1.31, according to Thomson Reuters I/B/E/S.
The beat on earnings reflected a lower-than-expected tax rate and lighter-than-anticipated expenditure, although with the full-year outlook unchanged this phasing impact is not likely to affect full-year earnings forecasts.
Shares in the group fell 2.6 percent by 0930 GMT.
In addition to the weak sales picture, there was also uncertainty over a new U.S.-led inquiry into manufacturing standards at a site in northern England.
Chief Financial Officer Simon Lowth said AstraZeneca's strategy was on track, in terms of investing for future growth, with a lot more effort being put behind the promotion of Brilinta in the U.S. market in particular.
"We expect to see the (Brilinta) trajectory really start to steepen and accelerate on the back of those investments towards the back-end of this year," he told reporters in a conference call.
CEO Soriot, who joined from Roche last October, set out a far-reaching plan last month to return the group to growth by axing one in 10 jobs and reorganising its drug research operations.
His plan promises no quick fixes, although he aims to double the number of drugs in late-stage development by 2016 and he says he will scour the industry for bolt-on acquisitions with which to replenish the company's medicine cabinet.
Soriot has said on several occasions that he would prefer a series of smaller "bolt-on" deals rather than a large, transformational transaction.
Whether Soriot will deliver in the long term remains to be seen - but his arrival at the group has not been cheap, leading to complaints from some shareholders about his pay package.
A group representing local pension funds in Britain is recommending that its members vote against Soriot's pay at the company's annual meeting later on Thursday.
AstraZeneca shares trade at a discount to other large pharma companies, at less than 10 times this year's expected earnings compared with close to 15 for GlaxoSmithKline and Novartis.
That reflects analyst forecasts of sliding sales and profits for several years, with its two top drugs - Nexium for stomach acid and Crestor - facing loss of U.S. patent protection in 2014 and 2016, respectively.
With cash flows set to decline, rating agencies have recently become more gloomy on AstraZeneca, with Moody's this month downgrading its credit rating for the company and Standard & Poor's cutting its outlook to negative.
(Editing by Jane Merriman and Helen Massy-Beresford)