AZ shows progress, but Crestor loss will see it shrink in 2016


AstraZeneca (AZ) is making strong progress in re-building its drug portfolio, but 2016 will see revenues and profit decline sharply as its blockbuster Crestor goes off patent.

The UK-based pharma company has today reported that revenues inched up 1% to $24.7 billion in 2015, thanks to growth in new cardiovascular, diabetes and cancer drugs.

However this was all but offset by a decline in big sellers such as Nexium (down 32% over the year) and Seroquel XR (-16%).

Cholesterol drug Crestor faces the same fate from May, wiping billions from its revenues, a loss which AZ says will result in a mid-single-digit decline in its total sales in 2016.

While earnings per share rose this year, they will also go into mid-single-digit decline next year.

In 2014, chief executive Pascal Soriot promised to raise revenues to $45 billion by 2023, and reiterated the pledge in a press conference this morning.

Many analysts doubt the firm can achieve the huge growth target, which will require new drugs to generate multi-billion dollar growth year on year from 2017 onwards.

Soriot admits the company faces 'extremely challenging headwinds' from Crestor, but can point to plenty of solid, if as-yet-unspectacular, progress for the middle-to-long-term horizon.

The company's two approvals from last year, gout drug Zurampic and non-small cell lung cancer (NSCLC) treatment Tagrisso were encouraging signs for investors. Tagrisso, in particular, represents a major opportunity, with AZ predicting peak sales of up to $3 billion a year.

Cardiovascular drug Brilinta is currently the firm's biggest growth engine, increasing sales by 44% in 2015, with a recently-extended US label and positive CHMP opinion helping to maintain its momentum. Its sales stood at $619 million, however, still a long way off replacing the blockbuster revenues of Crestor, which earned $5 billion last year.

Growth in AZ's diabetes portfolio is strong (26% last year, including 76% in Emerging Markets). A key event this year will be a resubmission to the US FDA of its saxagliptin/dapaglifloxin combination, which the FDA rejected last year and requested further trial data.

In immuno-oncology, AZ is having to pare back expectations of its candidate durvalumab. Once marked out for a market entry for NSCLC, AZ is now focusing on a filing for the less lucrative head and neck cancer market.

Data in this setting will get a readout in the second half of the year, along with a raft of other oncology drugs.

The company was also one of the busiest in the sector in relation to mid-size dealmaking in 2015. In the last quarter alone, it acquired Takeda's respiratory business, bought ZS Pharma and its late-stage hyperkalaemia drug ZS-9 and took a majority holding in Acerta Pharma and its potential best-in-class BTK cancer treatment acalabrutinib.

ZS-9 will be one of the six anticipated regulatory filings in 2016, helping to maintain the company's momentum.

Mr Soriot asked journalists and investors not to get 'lost in the woods' of short-term revenue and earnings figures and instead focus on the longer development cycles. He and his leadership team will hope that the encouraging progress in new approvals, as well as likely further well-judged deals around its key therapy areas, will keep investors happy, despite that $45 billion revenue target looking as distant as ever.

Andrew McConaghie

4 February, 2016