On November 5, 2020 AstraZeneca reported increases in the top line, profit and cash, underpinned by a strategy of sustainable growth through innovation (Press release, AstraZeneca, NOV 5, 2020, View Source [SID1234570263]). Total Revenue was in line with expectations and the operating performance continued to improve, with earnings growth in the third quarter reflecting Collaboration Revenue and Other Operating Income and Expense weighted towards the fourth quarter. As a result, full-year guidance remains unchanged.
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Pascal Soriot, Chief Executive Officer, commented:
"We made encouraging headway in the quarter, despite the ongoing disruption from the COVID-19 pandemic. Highlights of the sales performance included further success in Oncology and an acceleration in the progress of Farxiga. Our pipeline also excelled, with Farxiga expanding its potential beyond diabetes and heart failure with ground-breaking new data in chronic kidney disease, while regulatory submission acceptance was achieved for anifrolumab in lupus. In the fight against COVID-19, we advanced our vaccine collaboration with the University of Oxford and are launching Phase III trials for our long-acting antibody combination for the prophylaxis and treatment against COVID-19 for people who need an immediate defence or whose weaker immune systems mean they are less likely to benefit from a vaccine.
We continue to progress in line with our expectations and maintain our full-year guidance, which is underpinned by the strategy of sustainable growth through innovation."Highlights of Total Revenue in the year to date included:
-An increase in Product Sales of 9% (11% at CER) to $18,879m. The new medicines6 improved by 34% (36% at CER) to $9,894m, including new-medicine growth in Emerging Markets of 61% (68% at CER) to $2,189m. Globally, the new medicines represented 52% of Total Revenue (YTD 2019: 42%). The fall in Collaboration Revenue in the third quarter primarily reflected the comparative effect of milestone receipts in Q3 2019 in respect of Lynparza-Oncology growth of 23% (24% at CER) to $8,185m, while New CVRM7 increased by 7% (10% at CER) to $3,450m. Respiratory & Immunology declined by 1% (an increase of 1% at CER) to $3,841m and fell in the third quarter by 12% to $1,165m, a result of particular challenges facing Pulmicort in China
-An increase in Emerging Markets of 6% (11% at CER) to $6,466m, with China growth of 9% (11% at CER) to $4,013m. The latter included an adverse impact of 14 percentage points (15 at CER) from reduced sales of Pulmicort. In the third quarter, China grew by 6% to $1,354m 2-An increase in the US of 12% in the year to date to $6,445m and in Europe by 6% (7% at CER) to $3,709m. Europe Product Sales grew by 10% in the quarter (8% at CER) to $1,259m, with a decline in Total Revenue of 9% (11% at CER) to $1,262m reflecting the fall in level of the aforementioned Lynparza Collaboration Revenue receipts, which are recognised and reported in the Europe region Guidance The Company provides guidance for FY 2020 at CER.
Financial guidance for FY 2020 is unchanged. Total Revenue is expected to increase by a high single-digit to a low double-digit percentage and Core EPS is expected to increase by a mid-to high-teens percentage.
AstraZeneca recognises the heightened risks and uncertainties from the impact of COVID-198. Variations in performance between quarters can be expected to continue. The Company is unable to provide guidance and indications on a Reported basis because AstraZeneca cannot reliably forecast material elements of the Reported result, including any fair-value adjustments arising on acquisition-related liabilities, intangible asset impairment charges and legal-settlement provisions.
Please refer to the cautionary-statements section regarding forward-looking statements at the end of this announcement. Indications The Company provides indications for FY 2020 at CER:
-The Company is focused on improving operating leverage-A Core Tax Rate of 18-22%. Variations in the Core Tax Rate between quarters are anticipated to continue-Capital Expenditure is expected to be broadly stable versus the prior year Currency impact If foreign-exchange rates for October to December 2020 were to remain at the average of rates seen in the year to date, it is anticipated that there would be a low single-digit adverse impact on Total Revenue and Core EPS. The Company’s foreign-exchange rate sensitivity analysis is contained within the operating and financial review. Financial summary
-Total Revenue, comprising Product Sales and Collaboration Revenue, increased by 8% in the year to date (10% at CER) to $19,207m. Product Sales grew by 9% (11% at CER) to $18,879m, driven primarily by the performances of the new medicines across the three therapy areas and Emerging Markets
-The Reported and Core Gross Profit Margins9 were stable at 80% and 81%, respectively. A Core Gross Profit Margin in the third quarter of 79% was also unchanged versus the prior year
-Reported Total Operating Expense declined by 2% in the year to date (1% at CER) to $12,646m and represented 66% of Total Revenue (YTD 2019: 73%). Core Total Operating Expense increased by 4% (5% at CER) to $10,979m and represented 57% of Total Revenue (YTD 2019: 59%)-Reported R&D Expense increased by 8% in the year to date to $4,272m; Core R&D Expense increased by 9% to $4,165m. The increases partly reflected investment in the pipeline, including the development of datopotomab deruxtecan (DS-1062), and the ending in 2019 of the release of the upfront funding of Lynparza development as part of the collaboration with MSD10-Reported SG&A Expense declined by 7% in the year to date (5% at CER) to $8,084m; Core SG&A Expense increased by 1% (3% at CER) to $6,524m.
The difference in the movements partly reflected fair-value adjustments arising on acquisition-related liabilities, as well as an increase in legal provisions recognised in 2019, offset by additional intangible asset impairment charges recorded in the year to dateReported Other Income and Expense reduced by 15% in the year to date (14% at CER) to $888m.
Core Other Income and Expense fell by 16% in the year to date (15% at CER) to $889m and, in the third quarter, by 19% (20% at CER) to $285m-The Reported Operating Profit Margin increased in the year to date by six percentage points to 19%; the Core Operating Profit Margin increased by one percentage point to 28%-Reported EPS of $1.66 in the year to date represented an increase of 111% (113% at CER). Core EPS grew by 13% (16% at CER) to $2.95-Net Cash Inflow from Operating Activities of $3,001m in the year to date. This was a year-on-year increase of $1,407m, partly reflecting a $1,328m improvement in Reported Operating Profit to $3,675m and a favourable movement in the Increase in Working Capital and Short-Term Provisions Commercial summary Oncology Total Revenue increased by 23% in the year to date (24% at CER) to $8,185m.Respiratory & Immunology Total Revenue declined by 1% in the year to date (an increase of 1% at CER) to $3,841m. The impact of reduced sales of Pulmicort amounted to 15 percentage points of Total Revenue growth.Sales of Pulmicort, of which the majority were in China, were adversely impacted in the year to date by the effects of COVID-19. Pulmicort sales in Emerging Markets declined by 43% in the year to date (42% at CER) to $479m and by 60% in the third quarter (59% at CER) to $109m.
Emerging Markets Emerging Markets increased by 6% in the year to date (11% at CER) to $6,466m, including:
-A China increase of 9% (11% at CER) to $4,013m; the performance was adversely impacted by the aforementioned effects of COVID-19 on sales of Pulmicort. Q3 2020 Total Revenue increased by 6% to $1,354m
-An ex-China increase of 3% (10% at CER) to $2,453m. Q3 2020 Total Revenue declined by 7% (an increase of 2% at CER) to $783m, partly driven by the impact of divestments in prior periods COVID-19 The Company is managing a number of challenges from the ongoing pandemic, including:-reduced levels of patient screenings, diagnoses, testing and elective procedures-less face-to-face engagement with healthcare practitioners for commercial field-sales teams-additional costs and procedures related to COVID-19, such as facilities cleaning, personal protective equipment and colleague testing.
AstraZeneca is dedicated to providing safe-working environments for colleagues and suppliers-an increase in Distribution Expense-an impact on initiation, ongoing recruitment and follow-up in some clinical trials, primarily in the early stage. It remains prudent to assume that additional delays will arise as a consequence of the pandemic Despite a delayed global recovery, AstraZeneca is well-placed to manage these challenges. The unprecedented environment has also provided multiple opportunities to explore more efficient ways of working, which have the potential to provide long-term benefits to patients and to the Company.
In addition, AstraZeneca has mobilised research efforts to target the SARS-CoV-2 virus, to provide protection to societies and individuals against COVID-19 and to treat patients with severe disease. Late-stage clinical trials of the recombinant adenovirus vaccine candidate, AZD1222, are ongoing in a number of countries, including the UK, Brazil, South Africa and the US. The European Medicines Agency (EMA) announced in October 2020 that its Committee for Medicinal Products for Human Use (CHMP) had started a rolling review of data for AZD1222, the first COVID-19 vaccine to be reviewed under these arrangements. In the same month, the Company advanced into two Phase III clinical trials of AZD7442 to evaluate safety and efficacy in preventing infection, with plans for further trials for the treatment of COVID-19.
Further details of the Company’s broad COVID-19 research and development programme are shown in the research and development section of this announcement.
Details of AstraZeneca’s potential vaccine and its work with governments and other organisations can be found in the sustainability section of this announcement. Sustainability summary Recent developments and progress against the Company’s sustainability priorities are reported below: a) Access to healthcare During the period, AstraZeneca‘s Chief Executive Officer (CEO), Pascal Soriot, signed a vaccines pledge in collaboration with nine biopharmaceutical CEOs, committing to the continued safety and well-being of vaccinated individuals as the top priority in the development of the first COVID-19 vaccines. b) Environmental protection As part of its Ambition Zero Carbon strategy, the Company announced it had accelerated delivery of its renewable power-sourcing targets, achieving 100% supply of certified renewable imported power across all sites worldwide by the end of 2020, five years ahead of its original RE100 (renewable energy) commitments; along with switching to electric vehicles (EV100) and increasing energy productivity (EP100) by 2025. c) Ethics and transparency Highlighting the Company’s continued commitment to transparency and ethical conduct, a new Data and Artificial Intelligence (AI) Ethics position statement was published during the period to establish and make visible AstraZeneca’s principles around this emerging field of practice. A more extensive sustainability update is provided later in this announcement.
Conference call A conference call and webcast for investors and analysts will begin at 11:45am UK time today. Details can be accessed via astrazeneca.com. Reporting calendar The Company intends to publish its full-year and fourth-quarter results on Thursday, 11 February 2021.