AstraZeneca PLC (NASDAQ:AZN) Q4 2023 Earnings Call Transcript

AstraZeneca PLC (NASDAQ:AZN) Q4 2023 Earnings Call Transcript February 8, 2024

AstraZeneca PLC misses on earnings expectations. Reported EPS is $0.73 EPS, expectations were $0.75. 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).

Andy Barnett: Well, a warm welcome everybody to AstraZeneca’s Fourth Quarter and Full Year ’23 Results Presentation Conference Call and Webcast for Investors and Analysts. I’m Andy Barnett, Head of Investor Relations. And before I hand over to Pascal and Members of the Executive Team, I’d like to cover some important housekeeping points. Firstly, as I’m probably sure you realize all the materials are already on our website for your review. Here’s our forward-looking statement, which I’d encourage you to take the time to read. We’ll 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 that you all have seen.

All numbers quoted are in millions of U.S dollars unless otherwise stated. This slide shows the agenda for today’s call, following up our prepared remarks, we’ll open the line for questions. Of course, if you want to raise — ask a question in the room, raise your hands, there’ll be roving mics for those online, please use the zoom function to raise your hand. As usual, we’ll try and get to as many questions as we can through the course of the call. But if you limit the number of questions you ask at once, it’ll give others a fair chance to participate. And with that, Pascal, I’m going to hand over to you.

Pascal Soriot: Thank you, Andy. Good morning, everybody. And welcome to this London Stock Exchange, where we are celebrating our 25th anniversary as a company, merging Astra from Sweden and Zeneca from the UK, quite a number of years ago. But I want to start my talk with this slide. And this slide is important because I want to recognize or celebrate the fact that not only it’s our 25th anniversary, but importantly, we actually did achieve the goal we set ourselves 10 years ago to reach $45 billion sales in 2023. And in fact, I could argue we over achieved it, because at the current exchange rates are $45 billion probably is closer to $40 billion. And I don’t want to say that just to kind of pat ourselves on the back, even though I’d like to do this and celebrate our team’s effort.

But I want to mention it because, we always did this with our eyes on the long term and growth and we are embarking on another 10-year cycle. And we have announced an R&D Day, because we want to refresh our strategy and show you what we are planning to do over the next 10 years. But we got this $45 billion throw ups and downs. And I have to say often a lot of skepticism, but always on with our eye on the long term growth rate. And that’s what we’re going do. We believe we can grow, and we believe over the next 10 years we will deliver superior growth. And that’s, of course going to drive our profitability as a result of it. But our growth and sustainable strong growth is really what we are after. And we’ve done this whole following the science and, again, we’re embarking on a new cycle and we’re investing in new science that will shape the future of medicine and shape the future of this company.

And we can talk more about this. We have achieved this whole discipline investment, even though we often have extensive debates inside the company and are now is challenging everybody to be even more disciplined in terms of our investment. But we’ve constantly focused our investment on where we can deliver the most growth and also continuously focusing on oncology, cardiovascular disease, respiratory disease, more recently increasing our investment and keeping our eye on immune diseases and finally a rare disease. And the company we have today, and the team we have today, is very different from what it was 10 years ago. And it’s really a rewarding to see the progress we’ve made and the strengths we have developed in our portfolio, but also in the strength of the talent in the company.

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Q&A Session

The way we operate in oncology today and in the same in the other is very, very different. And it gives me confidence, we can actually deliver another cycle of very strong growth over the next 10 years. So importantly, we delivered our upgraded guidance for the year 15% growth, excluding COVID, we had guided to increasing to low teens. So 15% is slightly better. On the EPS front, we grow by 15%, which is also slightly better than upgraded guidance for the year. And in the quarter four, we saw an opportunity because we had a tax benefit, we saw an opportunity to invest to drive further growth and stronger growth next year and the years after, as we are launching new products and expanding our footprint, you saw that the emerging markets out of China grew by 35%.

China itself is rebounding and growing again. So, China is back again on the growth trajectory, and this year should be another good year. We’ve been improving our operating margin, you see a drop in ’21. But that was a bit of an artifact because it’s driven by the very large COVID sales we experienced and of course those who are no profits, so it dilutes operating margin. But essentially, you can see our continuous progress. And I wanted to say today that we are committed to our goals of mid 30s by in the midterm, and of course long term will be depending on our growth opportunities on our pipeline in particular. So we are doing three things. As I’ve said before, we’re driving, we are focusing on — today we’re driving growth, top line growth and operating margin, so we deliver our financial goals and that now is 2024 really.

We are building the pipeline, continuously by building the pipeline, so that we drive growth to more which is ’25 to 2030. And we are investing in new technologies and new products to shape the future of medicine and drive long term growth, and what I call long term growth is what I often refer to as being the day after tomorrow. And it’s ’28, ’29 and beyond. Ultimately, our goal is to remain a high growth company for the next period of time 10 years and beyond. You can see here that our revenue is spread across a variety of therapy areas, but oncology as you know very well, biopharma as you know very well in rare disease. And we had growth across all CRP areas. Oncology 21%, CVRM 18%, R&I 10%, of course, V&I declined, because we had a massive decline in COVID sales, and rare disease grew by 12%, which is more than most people expected, and actually more than we ourselves expected.

If you remember we guided that we could grow by high single digit, this well, this is business but in fact, we’re delivering low double digit goals, right. And Marc, will talk more about this. All geographies did very well 14% in the U.S., 20% in the emerging market, which is 35% ex China and 8% in China. And you can see here the growing importance of the emerging markets outside of China. In Europe we grow by 17% and established rest of the world 8%, Japan is starting to be impacted by the loss of exclusivity of Nexium of course, but still 8% growth is pretty nice number there. So again, well diversified growth across geographies, and across our disease areas. So, two more. So this is the today and tomorrow is really the pipeline during the pipeline.

We guided earlier this year that we had a goal of 30 new Phase 3, we’ve achieved 27, we’re shot by three that little bit delayed and starting in the early ’24 instead of ’23, but 27 is a very large number of we start. Importantly 10 of those have a potential to be blockbusters, is our new products, so new indications, blockbuster of course being more than $1 billion. So we have 10 of these Phase 3 trials, that if they are successful, we’ll deliver a $1 billion sales or more each. We also achieve 24 regulatory market — regulatory approval across major markets. And finally, we got approval for four new medicines and we are on track to deliver 15 new molecular entities, launches by 2030. And as you can see, you can see on this slide, those approvals — those new medicines range from biopharma with Airsupra to oncology with Truqap.

Again, back to BioPharm with Wainua eplontersen, and also rare diseases, Alexion or is danicopan Voydeya approval in PNH, so across the whole pipeline, we are launching new medicines. And finally, what I call the day after tomorrow is really this new technologies, those new platforms. And so what are we trying to do here? First of all, we have — we believe a tremendous opportunity to leverage our growing pipeline of antibody drug conjugates, with our IO bispecifics. So in the ADC space, we started with this collaboration with Daiichi Sankyo, that you know very well, we’ve now built our own internal portfolio of ADCs, where 6 ADCs, that are totally owned by AstraZeneca, with unique targets and unique warheads. And there’s more to come. We can talk about it later.

But we’re working on multiple targets and warheads. And finally, importantly, we can combine those with our bispecifics. And we have three of those two that are more advanced, and are very exciting products. And we believe in oncology, this ADC combination with IO can totally transform the way cancer is treated and position us as one of the few companies that has the potential to leverage these combinations. We’ve — we work on cell therapy, because we believe you know, cell therapy will be an important technology for the future. Today, those are mostly CAR-Ts in hematology, we want to take this into solid tumors, we want to take this into allergenic of the shelf cell therapy. And we also want to take this into immune diseases, and we started working on this.

So what we have been doing is leveraging our own internal effort and our own internal technologies and combining these ways, putting together a series of technologies and platforms, that has really the potential for us not to deliver what I was just talking about, which is moving into solid tumors, moving into allergenic, cell therapy and moving into immune diseases. And we now have a complete set of what we need. Now, it’s a question of integration and execution. But we have the technology that are required to achieve what our long term goal is in cell therapy, and you’ve got it listed here, Neogen, Quell Cellectis, Gracell. And all of those together will enable us to build what we want to do in oncology and BioPharm. Another technology that we believe will shape the long-term, is T-cell engagers.

And again, we’ve done that with our own internal effort, and complemented with BD. The BD we do is not a random BD, it’s always with a view to build a strong presence in some of the technologies we’ve identified. And we’ve done this with DC we’re doing it with cell therapy, we’re doing it with T-cell engagers. And finally we do it in gene therapy with a focus on rare diseases. If you are in rare diseases, you really have to have a gene therapy approach, complementing your portfolio and of course, here, you know, well, the Pfizer Gene Therapy portfolio acquisition and complemented with the Cellectis collaboration. So this is really what we believe is going to drive a little bit our mid-term growth with Daiichi Sankyo’s collaboration in some of the ADCs but mostly looking at driving growth ’28 ’29 and beyond.

So we can deliver growth today, tomorrow and the day after. So with this, I’ll hand over to Aradhana, who’s going to take you for the financials, Over to you.

Aradhana Sarin: Thank you. Thank you, Pascal. As usual, I will start with our reported P&L. As Pascal mentioned in his opening comments, total revenue increased 6% in 2023, which was at the top end of our updated guidance range. Product sales increased by 4%, despite a decline of $3.8 billion in COVID-19, product sales in the year, Alliance revenue increased by 89%, driven by higher and HER2 sales in regions where Daiichi Sankyo books product sales. Turning to the core P&L, our core product sales gross margins increased by 2 percentage points to 81.7%. This step up in gross margin was driven by lower COVID-19 revenues in 2023. In 2024, we anticipate a slightly lower product sales gross margin percentage, driven by higher sales in emerging markets increased Beyfortus product supply, higher production costs in certain facilities as well as higher product sales for partnered products and regions, where we book sales and then payout a profit share to our partners through cost of sales.

Core operating costs increased by 9% in 2023. R&D costs increased by 9% driven by 27 new Phase 3 starts in last year, including multiple trials of our PD-1 CTLA-4 bispecific volrustomig and our oral SERD camizestrant. R&D costs as a percentage of total revenue was 22%, in line with our ambition. As expected, core SG&A stepped up in the fourth quarter, relative to the third quarter in 2023. We increased our investment in new launches, behind Wainua, Truqap, Airsupra and continue to invest behind indications expansions such as Farxiga and CKD in heart failure and Imfinzi across tumor types. Our full year your core tax rate of 17% came in slightly below our guidance. The fourth quarter tax rate benefited from an adjustment to deferred taxes following an intra-group purchase of certain intellectual property offset by unfavorable tax ruling in certain jurisdictions.

Overall, our P&L allowed us to increase investments in both R&D and SG&A in the fourth quarter. Core EPS for the full year 2023 was $7.26, a growth of 15% versus the prior year. As Pascal stated earlier, we’ve made good progress on both top and bottom line delivery in recent years, and we remain on track to deliver both industry leading growth and improve operating margin to the mid-30s in the midterm. Balanced by the need for continued investment to drive top line growth in both the near term and midterm and long term. Today, we’re pleased to announce our 2024 full year guidance. We anticipate our total revenue of low double digit to low teens percentage increase, and our core EPS of low double digits too low teen percentage increase as well.