AstraZeneca PLC (NASDAQ:AZN) Q3 2023 Earnings Call Transcript

AstraZeneca PLC (NASDAQ:AZN) Q3 2023 Earnings Call Transcript November 9, 2023

AstraZeneca PLC beats earnings expectations. Reported EPS is $0.87, expectations were $0.79.

Operator: Good morning to those joining from the U.S. Good afternoon to those in the U.K. and Central Europe and good evening to those listening in Asia. Welcome, ladies and gentlemen to AstraZeneca’s Nine Months and Q3 Results 2023 Conference Call and 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 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 presentations. Please use the raise a hand feature to indicate your wish to ask a question and remember to unmute your line when invited to speak. And with that, I will now hand you over to the company.

Andy Barnett: Thank you, operator. I’m Andy Barnett, Head of Investor Relations at AstraZeneca and I’m very pleased to welcome you to AstraZeneca’s nine months and third quarter of 2023 conference call. As usual, all materials presented are available on our website. This slide contains our usual Safe Harbor statement, we will be making comments on our performance using constant exchange rates or CER, core financial numbers and other non-GAAP measures. And non-GAAP to GAAP reconciliation is contained within the results announcement, numbers used today are in millions of U.S. dollars unless otherwise stated. This slide shows our agenda for today’s call. 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’d asked participants to limit the number of questions you asked to allow others a fair chance to participate in the Q&A. As a reminder to ask a question use that raise a hand function in Zoom. Alternatively, you can use the Q&A button and write your answers. And with that, Pascal, I will hand it over to you.

Pascal Soriot: Thank you, Andy. Hello, everyone. Please advance to the next slide. Total revenue in the first nine months of the year increased 5% to $33.8 billion with 15% growth from non-COVID-19 medicines offsetting a $2.9 billion decline in revenue from our COVID-19 medicines. Core earnings per share increased 17% to $5.80. This increase is reflective of our robust company performance, our financial discipline, as well as again in other operating income that we announced with our half-year results. We continue to benefit from our diverse commercial portfolio in our broad global footprint. Given our confidence in the remainder of the year, we have upgraded our 2023 guidance. We now anticipate total revenue ex COVID to increase by low teens percentage and core EPS to increase by low double-digit to low teens percentage.

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Q&A Session

Aradhana will provide more details on our financials shortly. Next slide please. Taking a closer look at the performance of our non-COVID revenue across our regions and disease areas, we saw double digit growth in the U.S. and Europe in the period, reflecting strong demand for medicines and continued commercial execution. Our growth in the emerging market continues to impress, particularly outside of China, which was up 37% in the year-to-date. This sustained growth underscores our confidence that these markets will become increasingly important for our company. On the right-hand side of this slide, you will see that we delivered a robust double-digit growth across oncology, CVRM and rare disease. And as expected, we saw declines in V&I. R&I medicines grow more than compensated for the impact of January competition to Symbicort, launched in the U.S. during the third quarter.

We saw a reduction in promotional activities in China in Q3, which created some demand softness for certain medicines in the quarter, but have already seen recovery beginning in October. We remain confident in delivering our total revenue guidance for China for the full year, which we have graded with our half year results. Please move to the next slide. And like many of our peers, we have a relatively low exposure to patent expiries. We have a broad diverse portfolio of commercialized medicines. And we have an industry leading late-stage pipeline which includes several high potential assets. However, our vision is not short-term, we also striving to deliver sustainable industry-leading goals for many years to come. And while we are maintaining a focus on discovering new small and large molecules, we have taken a strategic decision to increase investment behind new modalities that we believe have the potential to revolutionize outcomes for patients.

With IDC portfolio, we are aiming to replace the use of traditional chemotherapy across the board. Combinations of our ADCs with our next generation IO BISPECIFICS portfolio offers the promise of more durable benefits for patients with improved tolerability. We are pioneering new modalities such as epigenetics, oligonucleotides and RNA therapies to unlock entirely new treatment approaches. And we are excited by the curative potential of cell engine therapies. I’m pleased with the progress we’re making in each of these areas, and I look forward to sharing updates with you over the coming years. With that, please advance to the next slide and I will hand over to Aradhana who will take you through our financials and also provide a closer look at how we’re leveraging AI in the commercial part of our company.

Aradhana Sarin: Thank you, Pascal. Please advance to the next slide. As usual, I will start with our reported P&L. As Pascal highlighted, total revenue increased by 5% in the first nine months, and product sales increased by 4% at constant exchange rates. Excluding COVID-19 medicines, total revenue and product sales increased by 15%. Alliance revenue of $1 billion was driven by increased and HER2 profit sharing from geographies where : Daiichi Sanky books product sales. As a reminder, Daiichi will book product sales in the U.S. and many European countries. Please advance to the next slide. Looking at our core P&L, we saw the product sales gross margin increase by two percentage points to 82.4% driven by lower COVID sales compared to the prior year.

We anticipate a lower gross margin in the fourth quarter driven by higher FluMist sales, which has a very low gross margin. Beyfortus which we supplied to Sanofi also has a dilutive impact on our product sales gross margins. Over time, the gross margin percentage will be diluted by both increased profit sharing for partner products such Tezspire and Enhertu in territories where we book revenue and higher emerging market revenue, partly offset by favorable product sales mix. Our core operating expenses increased 7% over the period. Similar to previous years, we expect a step-up in absolute cost in the fourth quarter driven by SG&A spend phasing and the number of new Phase III starts. For the full year, we anticipate operating expenses around the upper end of our previous indication of low to mid-single digit increase, driven by continued investment in our business to support the strong top-line growth seen into year end.

Core EPS of $5.80 represents a CER growth of 17%. Next slide please. Our cash flow continues to improve and net debt decrease in the quarter to $23.4 billion despite an interim dividend payment of $1.5 billion. Our net debt to EBITDA now stands at 1.7x with the Alexion fair value inventory adjustment now behind us. Turning to our full year guidance, we now anticipate total revenue to increase by a mid-single digit percentage up from previously low to mid-single digit. Excluding COVID-19 medicines, we now anticipate a growth in the low teens percentage range. For core EPS, we now anticipate to grow by a low double-digit to low teens percentage, which is an upgrade versus prior guidance of a high single digit to low double digit percentage increase.

Based on current FX rates, we anticipate a low single digit adverse FX impact on total revenue. For core EPS, we now anticipate a mid-single digit adverse impact on core EPS, which is a change versus last quarter reflecting current FX rates. Please advance to the next slide. Our capital allocation priorities remain unchanged. The number one priority is to reinvest in the business. By the end of the year, we will have started more Phase III trials than in prior years. Our high R&D productivity will also impact SG&A costs as we will have a number of new products to launch in the coming year including Airsupra in the U.S. and [indiscernible] and also preparation for potential new launches of Dato-DXd following the positive data presented at ESMO, just a couple of weeks ago.

We’re continuing to expand Alexion rare disease products into more international markets, now present in 64 countries. Many of the new modalities we’re investing in, as well as the growth in our portfolio will require further investment in CapEx. In addition, we’re investing in our manufacturing network, optimizing our global footprint and investing in upgrading our systems. We also remain focused on value enhancing business development, where we believe we can best leverage our R&D and commercial capabilities. We have done a number of deals this year including CinCor and Neogene and today with Eccogene and we will continue to do so where and when we see attractive opportunities. We have also a number of successful partnerships including with Daiichi on HER2 and Dato and Merck, Lynparza and Ionis on Eplontersen.

Overall, we will continue to invest to support growth, drive innovation, and bring innovative medicines to patients quicker. Please advance to the next slide. Continuing our commitment to showcase the use of AI across our business, in prior calls. I’ve covered some examples of the use in R&D and manufacturing operations. Today I’ll highlight the use of AI and advanced analytics to drive faster decision-making with a commercial organization. Starting first with data and analytics, our in-house proprietary platform, called AZ Brain analyzes multiple large data sets, enriching the data to correct for inaccuracies, duplication and data gaps to generate actionable insights. Next, we leverage AI to improve patient diagnosis and personalized treatment approaches.