AstraZeneca PLC AZN Third quarter & nine months results

London, 28 October 2010

Revenue for the third quarter declined by 2 percent at constant exchange rates (CER) to $7,898 million.

-Strong double-digit sales growth at  CER for Crestor, Symbicort and  Seroquel XR.

-Revenue in markets outside the US increased by 7 percent at CER, including  a 14 percent increase in Emerging Markets.

-As expected,  revenue in  the  US was  affected  by generic  competition  for Arimidex, Pulmicort Respules  and Toprol-XL, as  well as the  absence of  H1N1 pandemic influenza vaccine revenue that benefited the third quarter 2009.   US revenue was down 13 percent at CER in the third quarter.

Core operating profit in the third quarter was down 10 percent at CER to $3,231 million.

   -With the impact  from lower revenue being  largely mitigated by  operating efficiencies and higher other income, the decline in Core operating profit  is chiefly the result of a net $285 million adverse movement in gross margin - an intangible asset  impairment  charge this  quarter  set against  a  favourable provision release last year.

Core EPS in the third quarter was down 10 percent at CER to $1.50.

Reported EPS in the third quarter was down 26 percent at CER to $1.08.  

-Restructuring costs and legal provisions were higher compared with the  third quarter last  year, with  the  largest impact  arising from  legal  provisions totalling $473 million in the third quarter 2010 which are related to  ongoing product liability litigation for Seroquel (see Note 5).  

Net cash distributions to shareholders for the nine months increased to $4,658 million through dividend payments of $3,361 million and net share  repurchases of $1,297 million.

Core EPS target for the full year narrowed to the range of $6.50 to $6.65.

 Financial Summary

 Group               3^rd       3^rd Actual CER   9 Months 9 Months Actual CER
                  Quarter    Quarter
                                          %   %       2010     2009      %   %
                     2010       2009
                                                        $m       $m
                       $m         $m
 Revenue            7,898      8,200     -4  -2     24,652   23,859     +3  +2
Reported                                                                     
 Operating
Profit              2,406      3,204    -25 -24      9,083    9,218     -1  -3
 Profit before
Tax                 2,258      3,032    -26 -26      8,694    8,643     +1  -2
 Earnings per
Share               $1.08      $1.46    -26 -26      $4.45    $4.12     +8  +6
Core*                                                                        
 Operating
Profit              3,231      3,609    -10 -10     10,738   10,577     +2   -
 Profit before
Tax                 3,083      3,437    -10 -10     10,349   10,002     +3  +2
 Earnings per
Share               $1.50      $1.68    -11 -10      $5.32    $4.90     +9  +7
                                                                             
* Core financial measures are supplemental non-GAAP measures which  management believe enhance understanding of the Company's performance; it is upon these measures that  financial guidance  for  2010 is  based.  See  Operating  and Financial  Review  for  a  definition  of  Core  financial  measures  and  a reconciliation of Core to Reported financial measures.

David Brennan, Chief Executive Officer, said:   "We remain firmly on track  to achieve our  full  year  financial  targets.  The  third  quarter  performance featured double-digit  revenue  growth  in  Emerging  Markets.   Revenue  also increased in Western Europe and Established  Rest of World.  As expected,  the impact of generic competition on several products and the absence of  pandemic flu vaccine revenue led to a challenging quarter in the US."

Business Highlights All narrative  in this section refers  to growth rates  at constant exchange rates (CER) unless otherwise indicated

Third Quarter

Revenue in the  third quarter  was down  2 percent at  CER and  declined by  4 percent on an actual basis as a result of the negative impact of exchange rate movements.  Revenue  in  markets  outside  the  US  increased  by  7  percent, including a  14 percent  increase  in Emerging  Markets.  Revenue  in  Western Europe was  up 3  percent.  Revenue  in Established  Rest of  World was  up  5 percent, chiefly on good growth in Canada. As expected, revenue in the US  was affected  by  generic  competition   for  Arimidex,  Pulmicort  Respules   and Toprol-XL, as well as the absence  of H1N1 pandemic influenza vaccine  revenue that benefited the third quarter 2009.  US revenue was down 13 percent in  the third quarter.

Core operating profit in the third quarter was $3,231 million, down 10 percent.  With the impact from the decline in revenue in the quarter being largely mitigated by operating efficiencies and higher other income, the decline in Core operating profit was chiefly due to a net $285 million adverse movement in gross margin.  Core gross margin this quarter was adversely affected by a $128 million charge for impairment of intangible assets related to the decision to discontinue further development of lesogaberan (AZD3355), an investigational compound for GERD.  In contrast, the third quarter 2009 benefited from the release of a provision with respect to the resolution of an issue related to a third party supply contract.

Reported operating profit declined  by 24 percent, a  larger decline than  for Core operating profit; adjustments to Core operating profit were $420  million higher than the third  quarter last year, the  result of higher  restructuring costs and legal provisions.  The third quarter 2010 includes legal  provisions totalling $473 million  related to  ongoing product  liability litigation  for Seroquel. Of  the $473  million, $203  million relates  to the  agreements  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 estimates for settlement costs of outstanding US claims that have not yet been resolved and are  still subject to mediation and the  anticipated future defence costs  associated with  resolving all or  substantially all  of such remaining claims (see Note 5).

Core earnings per share in the third quarter were $1.50 compared with $1.68 in the third quarter 2009, a 10 percent decline at CER, broadly in line with  the trend for Core  operating profit.  Reported  earnings per share  in the  third quarter were down 26 percent to $1.08,  as a result of the same  restructuring costs and legal provisions that affected reported operating profit.

Nine Months

Revenue for  the nine  months increased  by 2  percent at  CER, but  was up  3 percent on an actual basis as a result of the positive impact of exchange rate movements.  Revenue outside the US  was up 8 percent,  with more than half  of this growth generated in Emerging Markets,  where revenue was up 16  percent.  Revenue in Western Europe  was up 4 percent.   Revenue in Established Rest  of World increased by 7 percent.   Revenue in the US  was down 5 percent,  driven largely by the factors that impacted performance in the third quarter.

Core operating profit was  $10,738 million for the  nine months, unchanged  at CER.  The positive impact from higher revenue combined with lower expenditures in Research and Development were largely offset by lower other income and  the unfavourable  comparison  for  gross  margin   cited  in  the  third   quarter commentary.  Reported operating profit was down 3 percent.

Core earnings per  share for  the nine  months were  $5.32, an  increase of  7 percent, which largely reflects  the benefit from the  net adjustments to  tax provisions ($0.13) in the first quarter  2010 and lower net finance  expense.  Reported earnings per share were up 6 percent to $4.45.

Enhancing Productivity

Good  progress  continues  on  the  previously  announced  business  reshaping programmes.  In the third  quarter, $212 million  in restructuring costs  were charged, bringing the total for the nine months to $777 million.

The first phase of the productivity  programme is now largely complete.  Since programme inception, the Company is on track to achieve $2.4 billion in annual benefits by the  end of 2010.  The second phase  is to be  completed over  the 2010-14 time frame, with the realisation  of a further $1.9 billion in  annual benefits expected by the end of  2014.  Restructuring charges of $2.0  billion are anticipated between  2010 and 2013,  with approximately 60  percent to  be taken in 2010, and most of the  remainder by 2011.  The 2010 phasing of  costs and benefits to date remains broadly in line with these estimates.

Dividends and Share Repurchases

To date, the Company has now completed net share repurchases of $1,297 million towards its target of $2 billion in net share repurchases in 2010.  The  Group has repurchased 36.1 million shares for a total of $1,742 million in the first nine months, whilst 10.7 million shares were issued in consideration of  share option exercises for a total  of $445 million. The  total number of shares  in issue at 30 September 2010 was 1,425 million. 

Research and Development Update

A comprehensive  update  of the  AstraZeneca  R&D pipeline  was  presented  in conjunction  with  the  Half  Year  2010  results  announcement,  and  remains available on the Company's website, www.astrazeneca.com, under information for investors.

Significant pipeline developments since the half year update include:

Brilinta/Brilique

On 24  September,  AstraZeneca  announced that  the  Committee  for  Medicinal Products for  Human Use  (CHMP) in  Europe issued  a positive  opinion on  the marketing  authorisation  application  for   Brilique  (ticagrelor)  for   the prevention of atherothrombotic  events in adult  patients with Acute  Coronary Syndromes (ACS). The positive opinion by  the Committee is now referred for  a final decision  by the  European  Commission. The European  Commission,  which makes the decision  whether to approve  a new  drug candidate for  use in  the European Union, typically renders its decision within a few months of the CHMP issuing its opinion.

On  15  September,  the   Company  announced  that  the   US  Food  and   Drug Administration (FDA) has extended the time  to complete its review of the  New Drug Application  (NDA)  for  Brilinta  (ticagrelor).   Accordingly,  the  FDA extended the Prescription  Drug User Fee  Act (PDUFA) date  from 16  September 2010 to 16 December 2010. AstraZeneca  will continue to work closely with  the FDA to support the review of the ticagrelor NDA.

On  1  October  2010,  AstraZeneca  announced  the  initiation  of  a   large, international, clinical outcomes  study for ticagrelor  in collaboration  with the Brigham and Women's  Hospital-based Thrombolysis in Myocardial  Infarction (TIMI) Study Group. The  PEGASUS-TIMI 54 study is  scheduled to begin  patient enrolment during the fourth quarter 2010.

Current treatment  guidelines for  ACS  patients recommend  dual  antiplatelet therapy for up to twelve months post-event, followed by longer-term  treatment with aspirin alone.

The PEGASUS-TIMI 54 study  will examine the long-term  efficacy and safety  of ticagrelor in patients  who have sustained  a heart attack  from one to  three years prior to enrolment. Such individuals are at substantially increased risk for another cardiovascular event.  The study  aims to determine in this  group of patients if treatment with ticagrelor  and aspirin will further reduce  the risk of subsequent cardiovascular events compared to aspirin alone.

Vimovo

On  11   October,   AstraZeneca  and   POZEN   Inc.  announced   that   Vimovo (naproxen/esomeprazole  magnesium)  500/20mg   modified-release  tablets   has cleared an important regulatory milestone by receiving positive agreement  for approval in 23 countries across the  European Union (EU). This follows all  22 Concerned Member States agreeing with the assessment of the Netherlands Health Authority,  acting  as  the  Reference  Member  State  for  the  Decentralised Procedure.   It   also   results   in  a   harmonised   Summary   of   Product Characteristics.  The Member States will now pursue pricing and  reimbursement and national approvals.

Vimovo, co-developed by POZEN Inc. and AstraZeneca, is indicated in Europe for the  symptomatic  treatment  of  osteoarthritis,  rheumatoid  arthritis,   and ankylosing  spondylitis  in   patients  who   are  at   risk  for   developing non-steroidal  anti-inflammatory   drug  (NSAID)-associated   gastric   and/or duodenal ulcers and where treatment with  lower doses of naproxen or of  other NSAIDs is not considered sufficient.

Lesogaberan (AZD3355)

Based on a  review of  phase II  dose finding  study results  with the  reflux inhibitor lesogaberan (AZD3355), a GABA[B] agonist under investigation for the treatment of  gastroesophageal  reflux  disease, AstraZeneca  has  decided  to terminate development of this compound.

Lesogaberan was  one  of  the  pipeline  assets  covered  by  the  Merck  exit arrangements (see  Note  6).   As  a result  of  the  termination  of  further development, the  intangible  asset  associated with  this  project  has  been impaired, resulting in a  $128 million charge  to cost of  sales in the  third quarter.

Zibotentan

On 27 September, AstraZeneca announced that a study evaluating zibotentan  for the treatment  of men  with metastatic  castration resistant  prostate  cancer (CRPC) did  not show  a significant  improvement in  the primary  endpoint  of overall survival.

Study 14 was a randomised, placebo controlled phase III study which  evaluated zibotentan 10mg  added to  standard of  care treatment  in 594  patients  with metastatic CRPC. The  safety and  tolerability profile of  zibotentan in  this trial was in line with previous studies.

Based on this study  result, AstraZeneca plans  no regulatory submissions  for zibotentan at this time. The  zibotentan ENTHUSE trial programme includes  two other ongoing studies  with zibotentan  in different CRPC  settings. The  full results of study 14 will be published in 2011.

Vandetanib

On 23  September, AstraZeneca  announced  that the  US  FDA and  the  European Medicines Agency (EMA) have accepted regulatory submissions for review of  the investigational drug vandetanib  in the  treatment of  patients with  advanced medullary thyroid cancer (MTC).  The FDA also  granted priority review  status for the NDA  and set a  PDUFA action date  of 7 January  2011.  The  Oncologic Drugs Advisory Committee of  the FDA is  scheduled to discuss  the NDA at  its meeting on 2 December 2010.

The submissions are supported  by the results from  the ZETA study  evaluating the safety and  efficacy of vandetanib  compared to placebo  in patients  with advanced MTC. MTC accounts for 5 percent of all thyroid cancers.  The American Cancer Society estimates  that more than  44,000 new cases  of thyroid  cancer will be diagnosed in the United  States in 2010.  Across Europe the  incidence is over 50,000 cases per year.

AstraZeneca is consulting with regulatory authorities on a proposed trade name for vandetanib.

Dapagliflozin

Dapagliflozin, an investigational compound, is a first-in-class sodium-glucose cotransporter-2 (SGLT2) inhibitor and is  currently in Phase III trials  under joint development by AstraZeneca and Bristol-Myers Squibb as a once-daily oral therapy for  the treatment  of  adult patients  with  type 2  diabetes.  SGLT2 inhibitors, which  act independently  of  insulin mechanisms,  facilitate  the excretion of glucose and  associated calories in  the urine, thereby  lowering blood glucose levels.

In September  2010, at  the European  Association for  the Study  of  Diabetes meeting in Stockholm, AstraZeneca and Bristol-Myers Squibb presented data from two Phase III studies of dapagliflozin. Data from a 24-week study  demonstrate that dapagliflozin improved glycosylated hemoglobin levels (HbA1c) when  added to glimepiride in adults with type 2 diabetes, compared to glimepiride  alone. Data from a 52-week  study demonstrate that  dapagliflozin plus metformin  was similar to glipizide plus metformin in  improving HbA1c in adults with type  2 diabetes. In addition, the data demonstrated that dapagliflozin plus metformin reduced total body weight, compared to increases in body weight reported  with glipizide,  and  reduced  the  number  of  patients  reporting  one  or   more hypoglycemic events.

A planned  analysis of  cardiovascular  (CV) event  data  from the  phase  III dapagliflozin development programme, mandated by  the new FDA guidelines,  was recently completed.  Based on  this analysis, the  Companies believe the  data meet the guidance set  forth by the  FDA regarding assessment  of CV risk  and thus are  deemed sufficient  to  support a  filing. Therefore,  the  Companies continue to progress the global development  plan and are targeting US and  EU regulatory filings by the end of 2010/early 2011.

ONGLYZA^TM fixed dose combination with metformin

In August  2010, the  Marketing  Authorisation Application  for a  fixed  dose combination of  ONGLYZA^TM  plus  metformin immediate  release  tablets  as  a treatment for  adults with  type  2 diabetes  was  validated by  the  European Medicines Agency.

In March 2010, AstraZeneca and Bristol-Myers Squibb announced that the US  FDA has accepted for review an NDA  for an investigational fixed dose  combination of ONGLYZA^TM plus metformin HCl extended-release tablets.  The PDUFA date for the review is 29 October 2010.

Seroquel XR

On 11 September, AstraZeneca announced that the European Commission has issued a positive decision  for the  approval of once-daily  Seroquel XR  (quetiapine fumarate) Extended Release Tablets as an add-on treatment of major  depressive episodes in  patients  with  Major  Depressive Disorder  (MDD)  who  have  had sub-optimal response to antidepressant monotherapy.

This decision follows a positive recommendation by the European Union CHMP  in April of this year.  AstraZeneca has secured approval in the 17 member  states that took part in the original Mutual Recognition Procedure.  For other member states timelines will vary.

The Company has  withdrawn the  mutual recognition  procedure application  for Seroquel XR for generalised anxiety disorder.

Motavizumab

On 30 August, AstraZeneca  announced that MedImmune,  its biologics unit,  has received a second complete  response letter (CRL) on  motavizumab from the  US FDA.  Based  on  the  preliminary  assessment of  the  CRL,  it  contains  the following  requirements  that  the  Company  should  address  to  advance  the motavizumab registration:

  • The FDA has requested evidence from an additional clinical trial that supports a satisfactory risk/benefit profile in the population(s) for which the prophylaxis indication is being requested.

The Company continues to believe in  the clinical benefit of motavizumab,  and will conduct  a complete  review  of the  CRL, continue  ongoing  constructive dialogue with the FDA as well as  make a decision regarding next steps in  due course.

As previously disclosed,  the Group  holds intangible assets  of $445  million relating specifically  to  motavizumab, which  may  be subject  to  impairment following completion of the Group's analysis of the CRL. Any impairment  would be excluded from Core earnings.

Fluenz

On 22 October,  AstraZeneca announced that  the European Union  CHMP issued  a positive  opinion  on  the  marketing  authorisation  application  for  Fluenz Influenza Vaccine  (Live  Attenuated,  Nasal) its  nasally  administered  live attenuated influenza vaccine (LAIV) for prevention of seasonal influenza.  The CHMP issued its opinion for marketing  this product in Europe for children  24 months to less than 18 years of age.

The Committee's positive opinion is now  referred for a final decision by  the European Commission,  which  typically  renders its  decision  on  whether  to approve a new drug candidate for use in the European Union within a few months of the CHMP issuing its opinion.

Fostamatinib

On 29  September 2010,  the  Company announced  the  enrollment of  the  first patient in the Phase  III clinical development  programme for fostamatinib,  a novel oral Syk inhibitor.   The Phase III programme,  called OSKIRA (Oral  Syk Inhibition in Rheumatoid Arthritis),  is designed to investigate  fostamatinib as a treatment for  rheumatoid arthritis (RA) in  patients with an  inadequate response  to  disease  modifying  anti-rheumatic  drugs  (DMARDs),   including methotrexate (MTX).

The OSKIRA  clinical trial  programme  will include  three pivotal  Phase  III studies assessing the efficacy and tolerability of fostamatinib: two  12-month studies  examining  the   effect  of  fostamatinib   on  patients   responding inadequately to  DMARDs including  MTX, and  a six-month  study assessing  the effect of fostamatinib on patients who have previously responded  inadequately to anti-TNF therapy.  The fostamatinib programme  will also include  long-term safety extension studies involving more  than 2,000 of the patients  recruited during the course of the Phase II and III programmes. 

Future Prospects

As expected, the  third quarter  presented some challenging  revenue and  Core Earnings comparisons compared with the third quarter last year.  The continued good revenue growth in  markets outside the  US was more than  offset by a  US performance  that  included   the  anticipated  adverse   impact  of   generic competition in the US and the absence of H1N1 pandemic flu vaccine  revenues.  Gross margin also reflected the adverse impact from the intangible  impairment in the  third quarter  this year,  compared with  the provision  release  that benefited gross margin in the third quarter 2009.

The Company still expects demanding revenue and Core EPS comparisons to  carry into the fourth quarter.  Nevertheless, based on the year to date  performance and the outlook for  the rest of the  year, revenue for the  full year is  now likely to be broadly unchanged in  constant currency terms compared with  full year 2009.  Based on the January 2010 average exchange rates for our principal currencies, the target for Core EPS for the full year is in the range of $6.50 to $6.65, a narrowing of the previous $6.35 to $6.65 guidance range.

This target takes no account of the likelihood that average exchange rates for the remainder of  2010 may  differ materially  from the  January 2010  average rates upon which our earnings guidance is based.  An estimate of the sales and earnings sensitivity to movements of our major currencies versus the US dollarwas provided in conjunction with the Full Year 2009 results announcement,  and can be found on the AstraZeneca web site.

Revenue

All narrative in  this section  refers to  growth rates  at constant  exchange rates (CER) unless otherwise indicated

Gastrointestinal

               Third Quarter CER % Nine Months CER %
                 2010   2009        2010  2009

                   $m     $m          $m    $m     
Nexium          1,242  1,243    +2 3,738 3,681     -
Losec/Prilosec    233    240    -4   743   696    +3
Total           1,512  1,517    +1 4,588 4,458    +1


·    In the US, Nexium sales  in the third quarter  were $682 million, down  1 percent compared  with the  third quarter  last year.   Dispensed  retail tablet volume declined by around 4 percent, although Nexium market  share of dispensed units is down only  0.3 percentage points in September  2010 compared with December 2009.  Average realised selling prices for  Nexium were around 4 percent higher than the third quarter last year.
     
·    Nexium sales in the US for the nine months were down 4 percent to  $2,030 million.
     
·    Nexium sales in other markets in the  third quarter were up 5 percent  to $560 million.   Sales  in  Emerging  Markets  increased  by  16  percent, including 47 percent growth in China.  Sales in Established Rest of World were up 5  percent, on  19 percent growth  in Canada.   Sales in  Western Europe were  up  1  percent. In  Germany,  several  generic  esomeprazole products  were launched  during September and October 2010. On 15 October 2010, AstraZeneca filed requests for preliminary injunctions to  restrain the companies from marketing and selling these products in Germany.
     
·    Nexium sales in other markets  were up 7 percent  for the nine months  to $1,708 million.
     
·    Prilosec sales in the US  were down 56 percent  in the third quarter  and were down 24 percent for the nine  months.  Sales for the nine months  in the US were $38 million.   
     
·    Sales of Losec in the  Rest of World were unchanged  at CER in the  third quarter at $225 million.  Sales in China were up 23 percent.  Losec sales in the  Rest of  World were  up 5  percent for  the nine  months to  $705 million.
 

Cardiovascular

                   Third Quarter CER % Nine Months CER %
                     2010   2009        2010  2009     

                       $m     $m          $m    $m
Crestor             1,374  1,147   +20 4,104 3,245   +23
Seloken /Toprol-XL    273    414   -34   957 1,119   -16
Atacand               359    370    +1 1,108 1,049    +4
Plendil                63     60    +5   192   181    +4
Zestril                35     47   -21   117   141   -17
ONGLYZA^TM             19      9  +111    37     9   n/m
Total               2,249  2,191    +4 6,916 6,149   +10


·    In the US, Crestor sales in the third quarter were up 20 percent to  $626 million.  Crestor  total prescriptions  increased by  12 percent,  nearly five  times  the   statin  market   growth.   Crestor   share  of   total prescriptions continued  to increase,  reaching 12  percent in  September 2010.  Crestor  dynamic  share (new  and  switch patients)  is  now  15.4 percent, second only to generic simvastatin.
    
·    US sales  for Crestor  for the  nine months  increased by  22 percent  to $1,888 million.
     
·    Crestor sales in Rest of World were up 21 percent to $748 million in  the third quarter on volume growth that is well ahead of the statin  market. Sales in Western Europe were up 16  percent on good growth in France  and Italy and a strong launch uptake in Spain.  Sales in Established ROW were up 25 percent on strong growth in Canada, Japan and Australia.  Sales  in Emerging Markets were up 23 percent.
     
·    Crestor sales in the Rest of World  were up 25 percent to $2,216  million for the nine months.
     
·    US sales of  the Toprol-XL  product range,  which includes  sales of  the authorised generic, declined by 49 percent  in the third quarter to  $149 million.  Total prescriptions  for the  franchise were  down 33  percent, reflecting the additional competition  from the launch  of the 100mg  and 200mg dosage forms  by Watson in  early May  and from the  launch of  the Wockhardt generic in August.  Ex-factory  volume was also lower  compared with the third quarter last year, which included pipeline filling for the authorised generic that  followed a  return to full  supply.  It  remains difficult to ascertain when additional  generic entrants may be  approved in the US market.
     
·    Toprol-XL franchise sales  in the  US for the  nine months  were down  26 percent to $571 million.
     
·    Sales of Seloken in other markets were up 3 percent in the third  quarter and increased 6 percent for the  nine months.  Sales in Emerging  Markets increased by 8 percent in the third  quarter, and were up 14 percent  for the nine months.
     
·    US sales for Atacand  were down 26  percent in the  third quarter to  $52 million, and were down 16 percent for the nine months.
     
·    Atacand sales in Rest of World were up 7 percent in the third quarter  to $307 million.  For the year to date, those sales increased by 8  percent, chiefly on growth in Emerging Markets, where sales were up 21 percent for the nine months.
     
·    Alliance revenue  from the  ONGLYZA^TM collaboration  with  Bristol-Myers Squibb totalled $19 million in the third quarter and $37 million for  the nine months.  Alliance  revenue in the  US was $16  million in the  third quarter.  ONGLYZA^TM share of total  prescriptions in the US DPP4  market reached 9.1 percent in the week  ending 15 October.  ONGLYZA^TM share  of patients newly starting DPP4 treatment was 24.5 percent.

 

Respiratory and Inflammation


          Third Quarter CER % Nine Months CER %
            2010   2009        2010  2009     

              $m     $m          $m    $m
Symbicort    640    562   +19 2,005 1,628   +22
Pulmicort    180    320   -43   639   923   -32
Rhinocort     55     63   -13   175   199   -14
Oxis          15     16     -    48    44    +7
Accolate      17     17     -    50    49     -
Total        936  1,009    -4 3,013 2,941    +1

  • Symbicort sales in the US were $175 million in the third quarter, a 40 percent increase over last year. Symbicort share of new prescriptions for fixed combination products increased to 19.3 percent in September 2010, up another 0.4 percentage points since the beginning of the quarter. Market share of patients new to combination therapy is 26 percent.

    US sales of Symbicort for the nine months were $529 million, an increase of 58 percent.

    Symbicort sales in other markets in the third quarter were $465 million, 13 percent ahead of the third quarter last year. Sales in Established Rest of World increased by 56 percent, reflecting the launch in Japan where volume share is now over 20 percent. Sales in Emerging Markets were up 26 percent. Sales in Western Europe were up 4 percent.

    Symbicort sales in the Rest of World were up 13 percent to $1,476 million for the nine months.

    US sales for Pulmicort in the third quarter were down 71 percent to $61 million, as a result of the launch of the Teva generic budesonide inhaled suspension (BIS) product in December 2009. Pulmicort Respules share of dispensed BIS prescriptions was 17 percent in the quarter.

    US sales of Pulmicort for the nine months were down 59 percent to $237 illion.

    Sales of Pulmicort in the Rest of World for the nine months were up 12 percent to $402 million on a 36 percent increase in Emerging Markets.


Oncology

         Third Quarter CER % Nine Months CER %
           2010   2009        2010  2009     

             $m     $m          $m    $m
Arimidex    284    476   -38 1,234 1,422   -14
Casodex     137    174   -23   431   655   -36
Zoladex     268    282    -5   813   786    -1
Iressa      102     75   +33   278   218   +24
Faslodex     84     67   +31   234   190   +24
Nolvadex     21     22    -9    64    64    -5
Total       899  1,099   -18 3,063 3,349   -10


·    In the US, sales of Arimidex were down 80 percent in the third quarter to $43 million following a  number of generic approvals  at the end of  June 2010.  Total  prescriptions for  Arimidex  were down  81 percent  in  the quarter.
     
·    US sales for Arimidex for  the nine months were  down 28 percent to  $472 million.
     
·    Arimidex sales in other markets were down 4 percent in the third  quarter to $241  million.  Under  the  terms of  the  European  Union  Paediatric Regulation, the  Supplementary  Protection Certificate  (SPC)  Extensions received in 12 applicable EU  Member States (including France, Italy  and the UK) have extended market exclusivity from August 2010 until  February 2011.  ROW sales for the nine months were $762 million, down 2 percent.
     
·    Casodex sales in the US in the  third quarter were down 79 percent to  $3 million, as  a result  of generic  competition that  began in  the  third quarter last year.  Casodex sales in the US for the nine months were down 89 percent to $14 million.
    
·    Casodex sales in  the Rest of  World in  the third quarter  were down  18 percent to $134 million, chiefly on generic erosion in Western Europe and Japan.  Sales for the nine months in  Rest of World were down 23  percent to $417 million.
     
·    Iressa sales increased by 24 percent to $278 million for the nine months, including $29 million of sales in Western Europe.  Sales in Japan were up 7 percent.  Sales in Emerging Markets were up 19 percent, including a  22 percent increase in China.   
     
·    Faslodex sales for the nine months increased  by 17 percent in the US  to $98 million and grew by 29 percent in the Rest of World to $136 million.

 

Neuroscience

              Third Quarter CER % Nine Months CER %
                2010   2009        2010  2009     

                  $m     $m          $m    $m
Seroquel       1,303  1,231    +7 3,962 3,605    +9
  Seroquel IR  1,024  1,039    -1 3,124 3,130    -1
  Seroquel XR    279    192   +50   838   475   +76
Zomig            103    111    -5   318   319    -1
Vimovo             5      -   n/m     5     -   n/m
Total          1,644  1,578    +5 4,998 4,601    +8


·    In the US, Seroquel franchise sales were up 10 percent to $936 million in the third  quarter.   Total  prescriptions  for  the  Seroquel  franchise increased by 0.6 percent in  the third quarter.  Total prescriptions  for Seroquel XR  increased  by  73  percent, accounting  for  15  percent  of prescriptions for the franchise in the US.  Market share for the Seroquel franchise was a market-leading  30.8 percent in  September 2010 (down  17 basis points from June 2010).  
     
·    US sales for Seroquel for the nine months were $2,814 million, 11 percent ahead of last year.
    
·    Seroquel franchise sales in  the Rest of World  were $367 million in  the third quarter, a 1 percent increase.   Sales of Seroquel XR increased  by 35 percent, and now account for  33.5 percent of franchise sales  outside the US. Seroquel franchise sales were down 4 percent in Established  ROW, reflecting the phasing  of shipments  to our marketing  partner in  Japan partially offset by some growth in Canada now that generic erosion on the immediate  release   formulation  has   stabilised  following   loss   of exclusivity in  2008.  Seroquel  franchise sales  were up  10 percent  in Emerging Markets.  Franchise sales were unchanged in Western Europe. 
    
·    For the nine months, Seroquel sales in  the Rest of World increased by  6 percent to $1,148 million.
   
·    Vimovo sales in the US were  $5 million in the third quarter,  reflecting trade stocking ahead of sales force promotion that commenced in September 2010.


Infection and Other

                         Third Quarter CER % Nine Months CER %
                           2010   2009        2010  2009     

                             $m     $m          $m    $m
Synagis                     139     82   +70   641   681    -6
Merrem                      204    221    -5   634   636    -3
FluMist                     120     92   +30   123    94   +31
Non seasonal flu vaccine      -    152   n/m    39   152   -74
Total                       493    582   -14 1,520 1,676   -10

  • In the US, sales of Synagis for the nine months were down 29 percent to $370 million, the majority of which were recorded during the RSV season in the first quarter, which was negatively impacted by the new guidelines published by the COID. Outside the US, Synagis sales were up 67 percent to $271 million, reflecting timing differences in shipments to Abbott, our international distributor, rather than underlying sales trends.

    Sales of FluMist were $120 million, a 30 percent increase over the third quarter last year.

    There was no revenue recorded in the third quarter for US government orders for Live Attenuated Influenza Vaccine (LAIV) against Novel Influenza A (H1N1). This strain has now been incorporated into the traditional seasonal influenza vaccine.

     This project has been funded in whole or in part with Federal funds  from
     HHS/ASPR/BARDA, under Contract No. HHS01002009000021.

Geographic Sales

                 Third Quarter CER %  Nine Months  CER %
                   2010   2009         2010   2009

                     $m     $m           $m     $m     
US                3,179  3,659   -13 10,273 10,831    -5
Western Europe    2,150  2,286    +3  6,821  6,696    +4
Established ROW*  1,262  1,109    +5  3,701  3,146    +7
Emerging ROW      1,307  1,146   +14  3,857  3,186   +16
 

* Established ROW comprises Canada, Japan, Australia and New Zealand.

  • In the US, revenue was down 13 percent in the third quarter, as a result of generic competition for Arimidex, Toprol-XL and Pulmicort Respules as well as the absence of H1N1 pandemic influenza vaccine revenues that benefited the third quarter 2009. There was strong growth for Crestor, Seroquel XR and Symbicort.

    Revenue in Western Europe was up 3 percent in the third quarter, as good volume growth was partially offset by price reductions chiefly related to government interventions. Much of the volume growth was attributable to Crestor, Seroquel XR and Symbicort.

    Revenue in Established Rest of World was up 5 percent in the third quarter, largely the result of a 19 percent increase in Canada which was driven by Crestor. Revenue in Japan was up 1 percent, as good volume growth fuelled by Crestor and the Symbicort launch was largely offset by the impact of the biennial price reductions across the portfolio.

    Revenue in Emerging Rest of World was up 14 percent. Revenue in Emerging Europe was up 7 percent, as very strong volume growth was attenuated by price reductions, chiefly in Turkey. Revenue in China was up 27 percent on good growth for the PPI franchise, oncology and cardiovascular products. Revenue in Other Emerging ROW was up 17 percent, driven by Atacand, Nexium and Crestor.

     

Operating and Financial Review

All narrative in  this section  refers to  growth rates  at constant  exchange rates (CER) and on a Core  basis unless otherwise indicated.  These  measures, which are presented  in addition  to our Reported  financial information,  are non-GAAP measures which management believe useful to enhance understanding  of the Group's underlying financial performance of our ongoing businesses and the key business drivers thereto.  Core financial measures are adjusted to exclude certain  items,  such  as  charges  and  provisions  related  to  our   global restructuring and  synergy programmes,  amortisation  and  impairment  of  the significant intangibles relating to our acquisition of MedImmune Inc. in  2007 and our current and future exit arrangements  with Merck in the US, and  other specified items.  More detail on the nature of these measures is given on page 37 of our Annual Report and Form 20-F Information 2009. 

Third Quarter

All financial figures, except earnings per share, are in $ millions.  Weighted average shares in millions.

                                             Merck &                                             
                                                                                                       
                                           MedImmune  Intangible      Legal                 Actual
                 Reported                                                      Core    Core          CER
                     2010 Restructuring Amortisation Impairments Provisions    2010    2009      %     %
Revenue            7,898             -            -            -         -   7,898   8,200     (4)   (2)
Cost of Sales     (1,524)           19            -            -         -  (1,505) (1,239)
Gross Profit       6,374            19            -            -         -   6,393   6,961     (8)   (7)
% sales             80.7%                                                     80.9%   84.9%  -4.0  -4.2
Distribution         (82)            -            -            -         -     (82)    (73)    12    12
% sales              1.0%                                                      1.0%    0.9%  -0.1  -0.1
R&D               (1,077)           91            -            -         -    (986) (1,049)    (6)   (5)
% sales             13.6%                                                     12.5%   12.8%  +0.3  +0.3
SG&A              (3,011)          102          115            -       478  (2,316) (2,373)    (2)   (1)
% sales             38.1%                                                     29.3%   28.9%  -0.4  -0.4
Other Income         202             -           20            -         -     222     143     54    56
% sales              2.5%                                                      2.8%    1.7%  +1.1  +1.0
Operating Profit   2,406           212          135            -       478   3,231   3,609    (10)  (10)
% sales             30.5%                                                     40.9%   44.0%  -3.1  -3.4
Net Finance
Expense             (148)            -            -            -         -    (148)   (172)
Profit before
Tax                2,258           212          135            -       478   3,083   3,437    (10)  (10)
Taxation            (704)          (66)         (28)           -      (124)   (922)   (993)
Profit after Tax   1,554           146          107            -       354   2,161   2,444    (12)  (11)
Non-controlling
Interests             (6)            -            -            -         -      (6)     (6)
Net Profit         1,548           146          107            -       354   2,155   2,438    (12)  (11)
Weighted Average
Shares             1,437         1,437        1,437        1,437     1,437   1,437   1,449
Earnings per
Share               1.08          0.10         0.08            -      0.24    1.50    1.68    (11)  (10)

Revenue declined by 2 percent to $7,898 million.

Core gross margin of  80.9% was 4.2 percentage  points lower than last  year. 

The  charge  for  impairment  of  intangible  assets  related  to  lesogaberan (AZD3355) (1.6 percentage points) and the  2009 benefit from the release of  a provision with respect to the resolution of an issue related to a third  party supply contract (1.9 percentage points)  were responsible for the majority  of the decline. The remaining decline was as a result of higher royalty  payments (0.9 percentage points) which were only partially offset by favourable mix and operating efficiencies (0.1  percentage points)  and lower  payments to  Merck (0.1 percentage points).

Core SG&A  costs  of $2,316  million  were 1  percent  lower than  last  year. Investments in Emerging Markets  and recently launched  brands were more  than offset by operational efficiencies across Established Markets.

Core other  income of  $222 million  was  $79 million  higher than  last  year including royalties received from sales of Teva's generic version of Pulmicort Respules.

Core Pre-R&D Operating Margin  was 53.4 percent,  down 3.7 percentage  points, with higher other income more than offset by the lower gross margin  described above.

Core R&D expenditure was  $986 million, 5 percent  lower than last year,  with continued investment in biologics being  more than offset by reduced  activity across the small molecule portfolio and efficiencies.

Core operating profit was $3,231 million, down 10 percent. In comparison  with last year against the dollar, the  euro was 10 percent weaker (reducing  sales and costs), the Swedish  krona was unchanged (neutral  to costs) and  sterling was 6 percent weaker (reducing costs). Core operating margin decreased by  3.4 percentage points to 40.9 percent as a result of the negative impact on  gross margin from an intangible asset  impairment charge this quarter compared  with the gross margin in the  third quarter 2009, which  included the release of  a provision that benefited gross margin.

Core earnings per share in the third  quarter were $1.50, down 10 percent,  in line with operating profit.

Reported operating  profit was  down 24  percent to  $2,406 million.  Reported earnings per share  were $1.08  down 26  percent as  a result  of the  factors affecting Core  earnings  per  share, higher  restructuring  costs  and  legal provisions, with the  largest impact arising  from legal provisions  totalling  $473 million in the  third quarter 2010 which  are related to ongoing  product liability litigation for Seroquel.

Nine Months

All financial figures in table, except earnings per share, are in $ millions. Weighted average shares in millions.


                                            Merck &                                             
                                                                                                      
                                          MedImmune  Intangible      Legal                 Actual
                Reported                                                      Core    Core          CER
                    2010 Restructuring Amortisation Impairments Provisions    2010    2009      %     %
Revenue          24,652             -            -            -         -  24,652  23,859      3     2
Cost of Sales    (4,630)          110            -            -         -  (4,520) (3,971)
Gross Profit     20,022           110            -            -         -  20,132  19,888      1     -
% sales            81.2%                                                     81.7%   83.4%  -1.7  -1.8
Distribution       (248)            -            -            -         -    (248)   (207)    19    16
% sales             1.0%                                                      1.0%    0.9%  -0.1  -0.1
R&D              (3,388)          463            -            -         -  (2,925) (3,064)    (5)   (6)
% sales            13.7%                                                     11.9%   12.9%  +1.0  +1.0
SG&A             (7,923)          204          327            -       493  (6,899) (6,825)     1     -
% sales            32.1%                                                     28.0%   28.6%  +0.6  +0.6
Other Income        620             -           58            -         -     678     785    (14)  (14)
% sales             2.5%                                                      2.8%    3.3%  -0.5  -0.5
Operating
Profit            9,083           777          385            -       493  10,738  10,577      2     -
% sales            36.9%                                                     43.6%   44.3%  -0.7  -0.8
Net Finance
Expense            (389)            -            -            -         -    (389)   (575)
Profit before
Tax               8,694           777          385            -       493  10,349  10,002      3     2
Taxation         (2,245)         (201)         (74)           -      (127) (2,647) (2,892)
Profit after
Tax               6,449           576          311            -       366   7,702   7,110      8     6
Non-controlling
Interests           (17)            -            -            -         -     (17)    (14)
Net Profit        6,432           576          311            -       366   7,685   7,096      8     6
Weighted
Average Shares    1,445         1,445        1,445        1,445     1,445   1,445   1,448
Earnings per
Share              4.45          0.40         0.22            -      0.25    5.32    4.90      9     7


Revenue grew by 2 percent to $24,652 million.

Core gross margin of  81.7 percent was 1.8  percentage points lower than  last year. The third  quarter intangible  impairment (0.5  percentage points),  the 2009 benefit from the release of a provision with respect to the resolution of an issue related  to a third  party supply contract  (0.7 percentage  points), higher royalty payments (0.4 percentage  points) and regional and product  mix factors (0.4 percentage points) were  only partially offset by lower  payments to Merck (0.2 percentage points).

Core SG&A costs of $6,899  million were flat at  CER compared with last  year. Investments in Emerging  Markets and  recently launched  brands together  with higher legal  costs  were mostly  offset  by operational  efficiencies  across Established Markets.

Core other  income of  $678 million  was  $107 million  lower than  last  year chiefly as a result of the prior year Nordic OTC and Abraxane® disposal  gains only being partially offset by royalties received from sales of Teva's generic version of Pulmicort Respules.

Core Pre-R&D Operating Margin  was 55.5 percent,  down 1.8 percentage  points, with the  lower gross  margin and  lower disposals  within other  income  only partially offset by the leverage  from revenue growth and efficiencies  within SG&A.

Core R&D expenditure was  $2,925 million, 6 percent  lower than last year,  as the increased investment in biologics was more than offset by lower intangible impairments and  project  costs  and efficiencies.  The  lower  project  costs reflect several late stage projects completing their trials.

Core operating profit was $10,738 million, flat at CER. Core operating  margin declined by 0.8 percentage  points to 43.6  percent as a  result of lower  R&D expenditure and operational efficiencies  which were more  than offset by  the third quarter items within gross margin.

Core earnings per share  in the first  nine months were  $5.32, up 7  percent, with operating performance boosted  by lower net finance  expense and a  lower effective tax rate  largely due to  the first quarter  net adjustments to  tax provisions ($0.13).

Reported operating  profit was  down  3 percent  to $9,083  million.  Reported earnings per  share were  $4.45, up  6 percent,  as a  result of  the  factors affecting Core earnings  per share  partially offset  by higher  restructuring  costs.

Finance Income and Expense

Net finance expense was  $389 million for the  year to September, versus  $575 million in 2009  ($148 million for  the quarter, versus  $172 million for  the third quarter of 2009). Fair  value gains of $6  million were recorded on  the long-term bonds in  the year to  September, versus fair  value losses of  $130 million for the first  nine months of  2009 ($2 million  loss for the  quarter versus $30 million loss for quarter three 2009). In addition to this, there is reduced interest  payable  on  lower debt  balances,  and  slightly  increased returns from higher cash and cash equivalent balances.

Taxation

The effective  tax rate  for the  third  quarter is  31.2 percent  (2009  30.0 percent) and 25.8 percent for the  first nine months (2009 30.8 percent).   As previously disclosed, the effective tax rate has benefited from an  adjustment in respect  of  prior periods  following  the announcement  in  February  that AstraZeneca had  settled a  long-running transfer  pricing issue  and  certain other outstanding UK tax matters with  the UK Tax Authorities.  The effect  of this settlement and developments in other transfer pricing matters resulted in a net benefit  to earnings of  $194 million  which was reported  in the  first quarter.  For the full year, the Company anticipates the tax rate to be around 27 percent.

Cash Flow

Cash generated  from operating  activities  was $7,120  million for  the  nine months to 30 September 2010, compared with $7,657 million in the corresponding period of 2009.  The  reduction of $537 million  is primarily driven by  legal settlement payments relating  to Seroquel  sales and  marketing practices  and Average Wholesale Price litigation in the US of $645 million, partially offset by a stronger underlying performance.

Net cash outflows from  investing activities were $1,888  million in the  nine months compared with $572 million in  2009. The increase of $1,316 million  is due primarily to higher net  payments on externalisation activities of  $1,472 million (including the Merck First Option payment of $647 million).

Net cash  distributions  to shareholders  increased  to $4,658  million  (from $2,892 million in 2009)  through dividend payments of  $3,361 million and  net share repurchases of $1,297 million.

Debt and Capital Structure

As at 30 September  2010, gross debt  (including loans, short-term  borrowings and overdrafts) was $10,607 million (31 December 2009: $11,063 million).   The reduction in gross debt of  $456 million during the  first nine months of  the year was principally due to the repayment on maturity of the Euro 500  million 18-month bond  issued  in  July  2008, partially  offset  by  an  increase  in short-term borrowings and overdrafts.  Of the gross debt at 30 September 2010, $1,376 million is due within one year (31 December 2009: $1,926 million).  Net funds of $1,307 million have increased by $772 million since 31 December  2009 as a result of the net cash inflow during the nine months to 30 September 2010 as described above.

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