August 1, 2013 / 6:26 AM / 4 years ago

AstraZeneca warns of higher costs as drug sales slide

LONDON (Reuters) - British drugmaker AstraZeneca warned on Thursday of higher costs in 2013 as it invests through a slump in sales caused by a wave of patent expiries on key medicines.

The prediction that operating costs will now increase by a low-to-mid single digit percentage rate this year amounts to an effective cut in earnings guidance, analysts at Jefferies said.

Deutsche Bank said consensus full-year earnings forecasts could fall by a couple of percent.

New Chief Executive Pascal Soriot is striving to turn around the business after a series of setbacks in research and a wave of patent expiries. He has warned that fixing Britain’s second-biggest drugmaker will take several years.

Sales in the second quarter fell by a slightly greater-than-expected 6 percent to $6.23 billion, while earnings tumbled by nearly a quarter due to a higher tax rate.

There were, however, some bright spots, with lung drug Symbicort doing well in the United States and demand picking up for new heart drug Brilinta.

Shares in the company slipped 0.7 percent by 0825 GMT (4.25 a.m. ET), underperforming a wider London benchmark index that was up 0.2 percent.

Soriot has set out a strategy of revamping research, accelerating certain development projects and striking deals, both to acquire smaller biotech companies and license in promising new medicines.

He added the latest asset to the company’s pipeline on Wednesday through a tie-up with U.S. biotech firm FibroGen potentially worth more than $815 million for rights to an experimental anaemia drug.

Sales were hit in the latest quarter by falling revenue from off-patent antipsychotic drug Seroquel, as well as growing competition to top-selling cholesterol fighter Crestor, which has lost patent protection in some countries and faces pricing pressure in the United States.

Sales of Crestor in Canada, for example, were down 77 percent after loss of exclusivity there in April 2012, although overall sales of Crestor at $1.48 billion held up better than some analysts had feared.


Overall, the revenue impact from products which have recently lost exclusivity amounted to around $500 million.

The group reiterated its expectation for a mid-to-high single digit percentage fall in revenue this year but said operating costs are now seen increasing by a low-to-mid single digit rate, whereas previously it had forecast costs would only be “slightly higher” than 2012.

Earnings are expected to decline significantly more than revenue in 2013, it said.

Pre-tax profit on a “core” basis, which excludes certain items, fell 12 percent to $1.94 billion, generating earnings per share down 23 percent at $1.20 a share, AstraZeneca said.

Analysts had, on average, forecast sales of $6.25 billion and earnings pre share of $1.20, according to Thomson Reuters I/B/E/S.

Demand for Brilinta - a new heart drug for which AstraZeneca has high hopes - picked up to $65 million from $51 million in the first quarter of 2012.

Emerging markets sales were up 12 percent, with nearly half of the improvement coming from a 21 percent increase in China.

China has been a strong growth market for AstraZeneca for many years, although prospects for Western drug companies in the country have been clouded by a recent high-profile bribery scandal involving GlaxoSmithKline.

AstraZeneca said on July 22 that police in Shanghai were questioning one of its sales representatives in what it believed was a local case involving one individual.

Editing by Kate Holton and Tom Pfeiffer

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