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AstraZeneca Management Discusses Q3 2010 Results – Earnings Call Transcript

AstraZeneca Management Discusses Q3 2010 Results â¿¿ Earnings Call Transcript

AstraZeneca PLC (

AZN

)

Q3 2010 Earnings Conference Call

TST Recommends

October 28, 2010 7:00 AM ET

Executives

Jonathan Hunt – IR

Simon Lowth – CFO

Ed Pierson – Global Early Development Project Manager

Analysts

Brian Bourdot – Barclays Capital

Tim Anderson – Sanford C. Bernstein

Simon Johnson (ph) – Morgan Stanley

Gbola Amusa – UBS Investment Bank

Alexandra Hauber – JP Morgan

Gavin Macgregor – Credit Suisse

Kevin Wilson – Citigroup

Justin Smith – MF Global

Mattias Häggblom – Danske Markets

Presentation

Operator

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Good day ladies and gentlemen and welcome to AstraZeneca third quarter and nine months results analyst call. My name is Shannon. I’m your event manager. Throughout the conference your lines will remain on listen-only (Operator Instructions). I’d like to advise all parties this conference is being recorded. And now I’d like to hand over to Jonathan Hunt. Thank you, Jonathan.

Jonathan

Hunt

Thank you Shannon, and good afternoon and welcome ladies and gentlemen to AstraZeneca’s third quarter conference call. Leading today’s call is Simon Lowth, CFO of AstraZeneca. Also on the call are members of the finance and investor relations team. But as usual before I hand over to Simon, I’d like to read the Safe Harbor statement.

The company intends to use the Safe Harbor provisions of the United States Private Security Litigation Reform Act of 1995. Participants on this call may make forward-looking statements with respect to the operation and financial performance of AstraZeneca. By their very nature, forward-looking statements involve risk and uncertainties, and results may differ materially from those expressed or implied by these forward-looking statements. The company undertakes no obligation to update forward-looking statements. With that now I’ll turn over to Simon.

Simon Lowth

Well thank you Jonathan and good afternoon to everyone. On today’s call, I’m going to focus on five topics. First, the headline numbers for the third quarter and the nine months. Then, I’ll cover the third quarter revenue performance by region and by our key brands. Third, I’ll turn to the third quarter core operating performance, with an emphasis on the key drivers of operating profit and margin. I’ll briefly touch on cash performance and our steadily improving net cash position. And finally, I’ll close with our thoughts on guidance for the full year.

So onto the headlines. As you will have seen in this morning’s release, we remain firmly on track to achieve our full year financial targets. With good execution in the market, and cash generation in the quarter. Although the revenue headwinds we have been expecting on are visible in the third quarter results. Total company review was $7.9 billion in the quarter, that’s a 2% decline in constant currency terms. CRESTOR, Symbicort, Seroquel XR all posted strong double-digit sales growth in the quarter.

On a regional basis, we had good performance in the emerging markets were revenue increased by 14% on a constant currency basis. Despite the government price interventions in Western Europe, revenue there was up 3%. And established rest of the world markets, revenue was up 5% in the quarter on a good performance in Canada, which was driven by CRESTOR. Overall revenue in the markets outside the US increased by 7% in constant currency terms.

As expected generics competition in the absence of H1N1 pandemic flu vaccine revenues lets a challenging quarter in the US, where revenue was down 13%. Generic competition for Arimidex, Pulmicort Respules and Toprol XL reduced third quarter revenue by nearly $0.5 billion in aggregate, and a negative variance on flu vaccine cost of another $152 million.

Turning to the core operating profit for the quarter. The impact of the lower revenues on core operating profit was been mitigated by operating efficiencies and high other income So the key driver of the 10% decline in core operating profit was the negative impact on growth margin from an intangible asset impairment charged because of sales this quarter and this is set against the core gross margin in the third quarter of 2009, which benefited from the release of a provision related to the resolution of a third-party supply contract issue. So taken together its cost of impairment and lastly its provision released accounts for $285 million swing in core gross profit.

Core earnings per share in the quarter were $1.50 compared with a $1.68 last year. This is a 10% decrease with constant currency in line with the core operating profit trend. Now making the bridge from core EPS to reported EPS in the quarter. We have the usual adjustment times. Restructuring costs which were somewhat higher than the third quarter last year and then MedImmune and Merck related amortization, which are broadly stable year-on-year. Legal provisions are the biggest swing factor in the core adjusting items compared to a $180 million in Q3 2009, legal provisions totaling $478 million have been charged in the third quarter of 2010, of which $473 million relate to the ongoing product liability litigation with Seroquel.

Of the $473 million, $203 million relate to the agreement in principle that have already been reached to-date to resolve more than 18,250 claims. The balance of $270 million is an additional reserve which is the aggregate of two components. First, estimates for settlements costs of remaining US claims that have not yet been resolved and are still subject to mediation and second the anticipated future defense costs associated with resolving or all essentially all to such remaining plans. And the detail is included in note five in our third quarter financial statements.

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