AZ suffers ‘difficult start’ to 2012

 AstraZeneca saw revenue fall by 11% in the first quarter of 2012 after generic competition hit the company hard.

Sales amounted to $7.349 billion after several key brands lost exclusivity, which accounted for an 8% decline in revenue. Reported operating profit, profit before tax and earnings per share were also down by more than a third.

David Brennan, Chief Executive Officer, says the “anticipated impact” of generic competition “has made for a difficult start to the year”.

Revenues were down in the US (12%), Western Europe (21%) and in Established Rest of the World (6%) and Emerging Rest of the World (1%); however, emerging markets did see a 1% increase.

In the US, revenue was down from $3.3bn in Q1 2011 to $2.9bn in the same period this year. Generic competition on Seroquel IR accounted for $223 million of the $384m loss. Growth was recorded for Onglyza, Seroquel XR and Symbicort. However, this was offset by a decline in sales of Nexium and a loss of protection for Toprol-XL, Arimidex and Merrem.

Sales were down further in Western Europe where generic competition for Nexium, Arimidex and Merrem accounted for nearly 60% of lost revenue. In Japan sales were down by a tenth, and in Canada by 8%.

An increase in revenue in China by 13% helped sales increase in emerging markets as AZ again faced the loss of patent protection for Crestor and Seroquel in Brazil and government interventions in price in Turkey.

AZ also lost $702 million in restructuring costs in Q1 as it undertook the third phase of the $2.1bn efficiency programme it revealed in February 2012. It anticipates that total restructuring costs will be absorbed this year in order to save $1.6bn by the end of 2014.

The disappointing results were published on the same day that David Brennan revealed plans to retire from his position on 1 June 2012.

Ana Nicholls, Analyst, Economist Intelligence Unit, says his decision to stand down is no real surprise. “Investors have long been dissatisfied with AstraZeneca’s efforts to cope with these challenges, despite its efforts to keep them onside,” she commented.

“Managers are aware they also need to step up their expansion into emerging markets that hold better growth prospects. Given this, and AstraZeneca’s fairly health cash pile, the company is under pressure to make acquisitions to help sustain growth – it is Mr Brennan’s failure to do this that has forced him into retirement.”

As a result of the Q1 figures, AstraZeneca readjusted its 2012 outlook and expects the decline in revenue will be in the range of the low to mid-teens.