AstraZeneca PLC (NASDAQ:AZN) Q1 2024 Earnings Call Transcript

AstraZeneca PLC (NASDAQ:AZN) Q1 2024 Earnings Call Transcript April 25, 2024

AstraZeneca PLC misses on earnings expectations. Reported EPS is $1.03 EPS, expectations were $1.22. AstraZeneca PLC isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning to those joining from the U.K. and the U.S. Good afternoon to those in Central Europe, and good evening to those listening in Asia. Welcome, ladies and gentlemen, to AstraZeneca’s First Quarter Results 2024 Webinar for Investors and Analysts. Before I hand over to AstraZeneca, I’d like to read the safe harbor statement. The company intends to utilize the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Participants on this call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca. Although we believe our expectations are based on reasonable assumptions, by their very nature, forward-looking statements involve risks and uncertainties and may be influenced by factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.

Any forward-looking statements made on this call reflect the knowledge and information available at the time of this call. The company undertakes no obligation to update forward-looking statements. Please also carefully review the forward-looking statements disclaimer in the slide deck that accompanies this presentation and webinar. There will be an opportunity to ask questions after today’s presentation. Please use the raise a hand feature to indicate you wish to ask a question, and remember to unmute your line when invited to speak. And with that, I’ll now hand you over to the company.

Andy Barnett: A warm welcome to AstraZeneca’s first quarter 2024 presentation conference call and webcast. I’m Andy Barnett, Head of Investor Relations at AstraZeneca. And before I hand over to Pascal and other members of the executive team, I would like to cover some important housekeeping points. Firstly, all of the materials presented today are available on our website. This slide contains our safe harbor statement, which I’d encourage you to take the time to read. We will be making comments on our performance using constant exchange rates or CER, core financial numbers and other non-GAAP measures. A non-GAAP to GAAP reconciliation is contained within the results announcement. All numbers quoted are in millions of U.S. dollars unless otherwise stated.

This shows the agenda for today’s call. And following our prepared remarks, we will open the line for questions. As usual, we will try and address as many questions as we can during the allotted time, although I would ask participants to limit the number of questions you ask to allow others a fair chance to participate in the Q&A. And with that, Pascal, I will hand over to you.

Pascal Soriot: Thank you, Andy. Good day, everybody. I’m pleased to report that we have made a very strong start in 2024. Total revenue grew by 19% in the first quarter, reflecting continued strong demand and core earnings per share rose by 13%, sorry. Recall, the first quarter of 2023 benefited from a $240 million gain in other operating income following the divestment of PULMICORT FLEXHALER in the U.S. Collaboration revenue and other operating income were minimal this quarter, which makes the EPS year-over-year growth all the more impressive. We’re also pleased to announce an increase in the annual dividend of 7% at the Annual General Meeting earlier this month. This increase is in line with our progressive dividend policy and reflects the continuing strengths of AstraZeneca’s investment proposition for shareholders.

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Q&A Session

Please advance to the next slide. We saw strong double-digit growth across our therapy areas in the first quarter. This is also the first quarter where quarterly revenue from our oncology and biopharma businesses exceeded $5 billion and rare diseases exceeded $2 billion reflecting the value our medicines bring to patients globally. We saw 19% growth in both the U.S. and Europe this quarter, driven by strong demand. Our business grew substantially in the emerging markets, and growth was pronounced — especially pronounced outside of China, driven by our sustained presence and commitment to this markets. Next slide, please. Our strong pipeline momentum has continued into 2024. We announced positive trial results for LAURA and ADRIATIC, both of which have been selected for presentation during the ASCO plenary, reflecting the important benefits seen for lung cancer patients.

As a reminder, there are five presentations at the plenary, so two out of five is a very unusual result. We saw a number of exciting new approvals in the first quarter. The approval of Tagrisso in combination with chemotherapy establishes a new benchmark for efficacy in frontline EGFR-mutated non-small cell lung cancer. The approval of a HER2 in previously treated HER2 positive cancers is the first tumor-agnostic approval for HER2-directed therapy and offers new hope for patients with the right range of cancers. And finally, Ultomiris was approved in NMOSD, and we are now working on establishing Ultomiris as the new standard of care for this debilitating disease. This approval is further build on the momentum we are seeing from other recent approvals listed here, and we’re investing to ensure that each of these new opportunities reach full commercial potential.

ADRIATIC and LAURA, if approved, coupled with the three approvals I’ve just described and ongoing launches, have the potential to deliver several billion dollars in total revenue — additional revenue in 2030. And this is what our pipeline is delivering in the first quarter of 2024. With that, please advance to the next slide, and I will hand over to Aradhana, who will take you through our first quarter financials.

Aradhana Sarin: Thank you, Pascal. And as usual, I will start with our reported P&L. Please turn to the next slide. Total revenue in the first quarter increased by 19% to $12.7 billion, predominantly resulting from strong product sales, which grew by 18%. The underlying demand for our medicines across the board was very strong in the quarter across both brands and across geographies. Enhertu and Tezspire continued their strong growth trajectory, and as a result, Alliance revenue increased by 59% to $457 million, driven by profit shares in regions where our partner booked product sales. Please turn to the next slide, which shows our core P&L. The product sales core gross margin was 82% in the quarter. As previously stated, we still expect gross margin for the year to be slightly lower than last year due to strong growth for partner medicines, including Enhertu and Tezspire as well as increased product supply to Sanofi for Beyfortus into the 2024-25 RSV season.

In the second half, we see additional impact from usual seasonal impact from medicines such as FluMist. Total operating expense increased by 15% in the quarter. R&D spend increased by 18%, partly driven by the Phase 3 trial starts, including dapa combinations with Baxdrostat and [indiscernible]. We continue to anticipate R&D spend will remain in the low 20s percentage of total revenue, inclusive of investments we are making to maximize the potential medicines acquired in recent business development transactions. We continue to show operating leverage. Supporting the 19% revenue growth, SG&A increased by 13% in the quarter. We have seen strong initial uptake for Airsupra, Truqap and Wainua in the U.S., and we’re investing behind this revenue growth as well as behind our existing brands, such as Breztri and Farxiga.

We’re also increasing our promotional efforts behind our rare disease medicines to support continued growth. We anticipate quarterly variations in our operating expenses given the dynamic nature of our business. Despite the limited contribution from other operating income this quarter, we saw core operating profit growth of 15% and core EPS of $2.06. Please turn to the next slide. In the first quarter, cash flow from operations was $2.5 billion. We saw CapEx of $417 million in the quarter, and we continue to anticipate CapEx to increase by approximately 50% on a full-year basis to support increased manufacturing capacity and support our growth. We had deal payments of $2.9 billion, including upfront payments for Icosavax and Gracell acquisition, both of which closed during the first quarter.

We also paid the third and final payment to the former shareholders of Acerta. Lastly, we paid the second interim dividend for 2023. At the end of our Q1, our net debt-to-EBITDA ratio was 1.9x. We anticipate the announced Fusion and Amolyt transactions to close in the coming months strengthening our radiopharmaceutical capabilities and expanding our presence in rare endocrinology. As a result of recent business development and debt refinancing, we expect finance expenses to grow compared to prior year. Reflecting the strength of our business, we are reiterating our full-year guidance for both total revenue and core EPS at constant exchange rates. With that, please advance the next slide, and I will hand over to Dave, who will take you through our Oncology performance.

David Fredrickson: Thank you, Aradhana. Next slide, please. Oncology total revenues grew 26% to $5.1 billion in the first quarter, driven both by double-digit growth across all regions and strong demand for our key medicines. Tagrisso global revenues grew 15% in the quarter, reflecting continued global demand for ADAURA and FLAURA. Following U.S. approval in February, we’ve seen strong interest and early uptake for FLAURA2 in the frontline setting, with oncologists particularly focused on patients with L858R mutations and CNS metastases at baseline. Lynparza delivered product sales growth of 11% in the first quarter and remains the leading PARP inhibitor globally across all tumor types. Imfinzi total revenues grew 33% on continued strength in biliary tract cancer with TOPAZ-1, which is now approaching peak market share penetration in the U.S., Japan and Europe.

Launches continue at pace across emerging markets, where biliary tract incidence and prevalence is high. And as previously communicated, we recognized a 25% mandatory price reduction in Japan effective from February 1, and anticipate a second mandatory price discount later this year. For the first time, we have split out Imjudo in our reporting and are pleased with its launch trajectory. We’ve established a strong foundation in hepatocellular carcinoma with HIMALAYA and see continued growth in non-small cell lung cancer with POSEIDON. Calquence total revenues increased 35% in the first quarter, driven by sustained BTK inhibitor leadership in frontline CLL across the U.S. and Europe. Enhertu total revenues increased 79% in the first quarter.

Again, we drove sequential market share growth in second-line HER2-positive breast cancer in the U.S. and Europe, where considerable growth remains. We see continued adoption in HER2 low across many global markets and eagerly await the DESTINY Breast 06 readout, which brings the potential for further expansion, moving Enhertu one line earlier. Following approval in November last year, we are pleased with the strong Truqap adoption in the biomarker altered population, achieving $50 million in the first quarter total revenues. Looking forward, we anticipate further expansion of Tagrisso with the approval of FLAURA2 in frontline non-small cell lung cancer and maximizing the U.S. launch of Enhertu across HER2-expressing tumors. Lastly, we’re excited that both ADRIATIC in limited stage and LAURA in Stage 3 unresectable cancer have been selected for the ASCO plenary session.

Each of these represents substantial growth opportunities in the near future and beyond, as Pascal has already outlined. With that, please advance to the next slide, and I’ll hand over to Susan to cover key R&D highlights in the quarter.

Susan Galbraith: Thank you, Dave. We’ve had an exciting start to the year with a number of key presentations, including data for our new generation PARP inhibitor, Saruparib in advanced solid tumors presented at this year’s AACR. This quarter, we announced the proposed acquisition of Fusion Pharmaceuticals, furthering our ambition to redefine the backbone of current cancer treatment. Along with chemotherapy, radiotherapy has been a mainstay of cancer treatment for decades. In fact, 30% to 50% of all patients receive radiotherapy. Whilst this treatment is effective, there’s also a toxic off-target effects. Fusion has developed a clinical stage portfolio of radio conjugates that are designed to deliver radiation therapy to tumor cells in a more targeted manner than external beam radiation.

As we’ve discussed already, we believe the future of cancer care is in combinations and there’s immense potential to combine radio conjugates with other modalities in our pipeline, including next-generation IO bispecifics, cell therapy, T-cell engagers and our DNA damage response agents. Importantly, the planned acquisition of Fusion accelerates our radiopharmaceutical manufacturing to commercial scale capabilities by over three years and offers additional security in actinium supply, with multi-source supply agreements in place. The lead pipeline candidate, FPI-2265, has potential to be the first actinium-based PSMA-targeted radiotherapy approved for the treatment of post-Lutetium metastatic gastric-resistant prostate cancer. FPI-2265 is differentiated and has potential to be both more potent and tolerable than currently approved B2 emitted conjugates.

Data presented earlier this month at AACR demonstrated further valuation of FPI-2265’s efficacy and tolerability. PSA50 response was achieved in 50% of patients overall and 43% of the lutetium-treated patient population and 54% of Lutetium-naive population. Furthermore, there were zero discontinuations related to Xerostomia, a common toxicity. We believe that our proven expertise in targeted delivery, together with Fusion’s clinical stage portfolio and manufacturing capabilities, presents an opportunity for clear leadership in the radio conjugate space. And with that, please advance to the next slide, and I’ll pass over to Ruud to cover BioPharmaceuticals performance.

Ruud Dobber: Thank you, Susan. Next slide, please. BioPharmaceuticals delivered total revenue of $5.2 billion in the first quarter of 2024, representing growth of 16%. Our key underlying growth drivers remain in place, including the continued growth of the largest cardiorenal medicine on the market, Farxiga. The increased uptake of biologic medicines in severe asthma and the ongoing momentum behind Breztri, our inhaled COPD medicine. In the United States, demand for Farxiga were strong in the quarter and benefited from the launch of Generic. We saw solid growth in emerging markets despite entry of generic competition in some countries. Presently, we still anticipate Farxiga may be included in China VBP in the second half of 2024.

Additionally, we saw a strong Symbicort performance in the first quarter despite generic pressures. This was particularly evident in emerging markets, where we saw strong underlying demand in both China and ex-China markets, strengthening its position as market leader in the region. Awareness of Airsupra continues to grow, and more than 18,000 health care practitioners have prescribed this new medicine, translating into 65,000 prescriptions in the quarter. The performance has been particularly strong among specialists. Airsupra already has over 15% of new share prescriptions by allergists and over 10% share of prescriptions from pulmonologists. As Airsupra is still in the first few months of launch, our revenues in quarter 1 did not reflect the full extent of initial demand due to introductory discounts.

These introductory discounts will fade through the year as we continue to expand access. Awareness is also building for Wainua, and we are very pleased to report our first revenues this quarter, following its recent approval for ATTR polyneuropathy in the United States. Wainua has only been available for a few weeks, but we are seeing good uptake among patients including some who are new to the class of medicine and some that have switched from other brands. Finally, we saw continued sales from Beyfortus in quarter 1, albeit with the expected seasonal drop versus quarter 4. We were particularly pleased to see the real-world data coming out of the U.S. with the Center of Disease Control reporting that Beyfortus was 90% effective at preventing infants from being hospitalized with RSV.

Next slide, please. I will now hand over to Sharon to discuss our ongoing development program for Wainua in TTR cardiomyopathy, where we have the potential to reach up to 0.5 million patients globally.

Sharon Barr: Thanks, Ruud. I wanted to take the opportunity to highlight results from a 66-week analysis of exploratory cardiac endpoint in the Phase 3 NEURO-Transform study of Wainua in hereditary ATTR polyneuropathy. In a predefined cardiac subgroup of hereditary ATTR polyneuropathy patients, treatment with oplontresin showed stabilization or improvement in cardiac function and structure relative to external placebo, including levels of NT-proBNP, a measure of cardiac stress; and a trend towards improvement in echocardiographic parameters such as left ventricular wall thickness, diastolic and stroke volume. These results provide confidence in our Phase 3 CARDIO-TTRansform trial in ATTR cardiomyopathy. ATTR cardiomyopathy is a systemic, progressive and fatal condition that typically leads to progressive heart failure and often death within three to five years from disease onset.

With more than 1,400 patients enrolled, CARDIO-TTRansform is the largest, most comprehensive ATTR cardiomyopathy study and importantly, includes cardiovascular outcome endpoints. In other key programs, we continue to maximize the opportunity for our best-in-class SGLT2 inhibitor, Farxiga. We have the potential to manage cardiorenal disease through three distinct mechanisms, complementary dual mechanisms combined dapagliflozin with [indiscernible] or Zibotentan. I am delighted to announce that all three combinations are now in Phase 3. Please move to the next slide, and I will now hand over to Marc, who will cover our Rare Disease portfolio.

Marc Dunoyer: Thank you, Sharon. Can I get the next slide, please. I’m delighted to report Rare Disease delivered our first $2 billion total revenue quarter, up 16% year-on-year. The growth rate here includes a small benefit from countries with high inflation. Growth was driven by neurology indication, increased patient demand and launches in new markets. In the quarter, Ultomiris revenue grew 34%, with the vast majority of growth coming from Generalized myasthenia gravis. GMG patients grew by 41% driven by demand in Europe and established rest of the world. In the U.S., we saw the highest number of new-to-brand patients in the quarter, supported by our increased promotional activities. During the quarter, we received U.S. approval of Ultomiris in NMOSD.

In the Phase 3 CHAMPION NMOSD trial, Ultomiris demonstrated adjugated relapses over 138 weeks. Given the strength of this data, we expect Ultomiris to be the treatment of choice for relapsing patients naive to biologics. We expect patient in Soliris to convert to Ultomiris over the short term. Following approval in U.S. and EU, Voydeya, an add-on therapy, ensure that PNH patients who experienced clinically significant extravascular hemolysis are able to continue on standard of care, Ultomiris or Soliris. Beyond complement, both Strensiq and Koselugo grew 21% and 18%, respectively, driven by patient demand as well as order timing in certain tender markets. Please advance to the next slide. During the quarter, we announced our plans to acquire Amolyt Pharma, which includes a Phase 3 asset in eneboparatide for patients with hypoparathyroidism.

Hypoparathyroidism is characterized by deficiency in parathyroid hormone production, which results in significant disregulation of calcium and phosphate leading to life-altering symptoms and complications, potentially including chronic kidney diseases. It is one of the largest known rare diseases. Phase 2a data from eneboparatide showed a normalization of serum consume level and a reduction in dependence on daily calcium and vitamin D supplements, both clinical priorities for treating patients. Data also suggested that eneboparatide has a potential to restore normal bone turnover and preserve bone mineral density. We believe eneboparatide has blockbuster potential and anticipate data from the Phase 3 CALYPSO trial in 2025. With that, please advance to the next slide, and I will hand back to Pascal for closing remarks.

Pascal Soriot: Thank you, Marc. Can I have the next slide, please? As you have heard, our company has made a very strong start to 2024 with demand for our medicines continuing to grow. Looking ahead, we are once again anticipating multiple pivotal trials to reach throughout the remainder of the year. Several important potential catalysts are shown here as well as DESTINY-Breast06, which Dave spoke about earlier, I would like to highlight CAPItello-281, which will be the first registrational study of Truqap in prostate cancer, an important potential new growth driver for this medicine. Since our full-year 2023 update, we have initiated the eight pivotal trials shown here, all of are potentially transformative for patients and could meaningfully accelerate our growth.