Sir Tom McKillop, chief executive of
, delivered his retirement notice Thursday, wrapped around a second-quarter financial report that topped Wall Street's expectations and prompted the company to raise full-year estimates.
McKillop, 62, will retire by the end of the year and be replaced by David Brennan, 51, who is president and CEO of AstraZeneca LP, the company's North America unit. McKillop said the change reflects the board's succession process that has been in the works for several years. Brennan's successor hasn't been chosen.
The Anglo-Swedish drug giant reported second-quarter earnings of 75 cents a share vs. the Thomson First Call consensus of 57 cents. AstraZeneca's second-quarter revenue of $6.1 billion blew past the consensus view of $5.6 billion and rose 16% from a year ago.
The performance for the three months ended June 30 was so strong that AstraZeneca now predicts earnings per share of more than $2.75 for the year, up from its previous guidance of $2.35 to $2.50. Analysts polled by Thomson First Call had been forecasting $2.47.
Following the news, AstraZeneca's shares were up $1.92, or 4.6%, to $44.03 by midafternoon on trading that was more than double the average daily volume.
Combined R&D expenses and administrative costs were 3% lower in the 2005 quarter vs. the 2004 quarter. Rising sales and shrinking costs "creates a platform for good earnings growth in the following two years," the company said.
AstraZeneca produced a "smokin' quarter," says Tim Anderson, of Prudential Equity Group, in a Thursday research report. "Results were better than even we expected." He has a neutral rating on the stock. He doesn't own shares, and his firm doesn't have an investment banking relationship.
Some of the strongest returns came from Nexium, the ulcer and heartburn drug whose second-quarter sales jumped 33% to $1.2 billion vs. the same period last year based on constant exchange rates. Sales of the blood pressure drug Toprol-XL rose 34% to $435 million. The antipsychotic drug Seroquel gained 35% to $667 million, and the cholesterol drug Crestor advanced 50% to $317 million.
The U.S. remained the biggest and fastest-growing market. Sales rose 20% to $2.74 billion on a constant exchange rate basis. European sales rose 8%, Japanese sales were up 6% and other markets climbed 9%.
The biggest drawback to the earnings news, says Graham Parry of Merrill Lynch, was the fact that AstraZeneca had dropped nine compounds from development since the beginning of the year, including a successor to Nexium.
"While AstraZeneca is clearly delivering a strong performance with its existing portfolio, much of the benefit is coming from a more rapid reduction in operating costs than expected," Parry says in a Thursday report to clients as he reiterated a neutral rating. He doesn't own shares, but his firm is a market maker in the stock and has had an investment banking relationship.
Parry noted that the company had pushed back by about a year its planned regulatory filing for the stroke drug Cerovive. The company expects to file in 2007 because it's expanding the size of a pivotal clinical trial.
This is the second drug in late-stage clinical trials whose regulatory filing has been pushed back within the last 12 months. In October, the company said it was delaying by a year -- until 2007 -- its application for
the diabetes drug Galida.
An application to the Food and Drug Administration for the asthma drug Symbicort is on track for the end of the third quarter, and a filing to expand Seroquel's use to bipolar depression should be made by year-end.
Although Parry will be raising near-term EPS estimates "we feel that the long-term future ... remains a concern due to a lack of pipeline assets," he says. "In our view, Mr. Brennan's first major task as CEO will be to address the issues for AstraZeneca's growth beyond 2007."
Brennan started his drug industry career 30 years ago as a sales representative for
. He eventually became general manager of a Merck subsidiary in France specializing in ophthalmics.
In 1992, he joined a joint venture between Merck and the former independent drug company Astra. Later, he became director of business planning and development at Astra's U.S subsidiary. When Astra merged with Britain's Zeneca Group in 1999, Brennan was put in charge of all commercial, licensing, strategy and planning activities for AstraZeneca in the U.S.
McKillop has been the AstraZeneca CEO since the merger. He started his career in 1969 in the corporate research laboratories of the British chemical-pharmaceutical conglomerate
. He moved to the ICI pharmaceuticals division, which was spun off from the parent in 1993 and renamed Zeneca Group. He held top jobs at Zeneca until the merger with Astra.