Floundering AZ's sales tanked in Q4—and that won't change this year, execs warn

It’s no wonder AstraZeneca pushed so hard last year to protect blockbuster Crestor from generic competition and launched a $1 billion-plus cost-cutting plan: Its newer meds aren’t getting the job done on the revenue side.

Thursday, the British drugmaker announced a Q4 top-line tally of $5.59 billion, which registered in-line with analyst expectations but marked a 13% drop year-over-year. And that’s not the kind of performance investors want from AstraZeneca as it continues trying to claw back from serious patent-cliff setbacks.

Crestor knockoffs certainly contributed to the slide, though not more than they were expected to, Bernstein analyst Tim Anderson pointed out in a note to clients. Generic rivals hit atypical antipsychotic Seroquel hard, though, dragging the med $51 million below consensus estimates.

And diabetes “was again weak” for the quarter, as Anderson put it, with only SGLT2 med Farxiga hitting forecasts. DPP-4 Onglyza crashed by 22%, while GLP-1 Bydureon slid by 8%. On the bright side, though, oncology med Tagrisso put up a “solid” $147 million for the quarter, capping off a $423 million performance for its first year.

Despite the in-line sales, earnings of $1.21 per share managed to far exceed Wall Street’s $1.14 prediction, thanks to AstraZeneca’s much-maligned cast-off strategy. The pharma giant has been divesting and out-licensing products left and right. Consider the gout med Zurampic, whose U.S. rights AZ handed off to Ironwood Pharmaceuticals in exchange for $265 million in cash, plus royalties; a portfolio of antibiotics, which it sent to Pfizer in exchange for up to $1.5 billion; and an anesthetics portfolio that South Africa’s Aspen Pharmacare snagged for up to $770 million.

While some analysts have criticized those moves, the company plans to keep them up. “Essentially what we try to do is find value everywhere in the portfolio,” CEO Pascal Soriot said during an earnings presentation, with CFO Marc Dunoyer noting that “the externalization is going to continue.”

Even so, AZ is predicting an earnings decline in the low- to mid-teens, percentage-wise, for this year, and it expects to see revenue head south by a percentage in the low- to mid-single digits. Top managers, however, say they're confident the downward spiral is nearing its end.

“We will grow,” Soriot promised investors during the presentation’s Q&A session. “The question is at what speed.”

Analysts, however, had plenty of other questions—most of them centered on immuno-oncology prospect durvalumab, a PD-L1 med, and its Mystic trial program, which includes tests of a durvalumab/CTLA4 combo, a closely watched cocktail in I-O right now.

Recent setbacks to I-O leader Bristol-Myers Squibb have been a double-edged sword for AZ; on the one hand, an Opdivo trial failure put durvalumab in a position to sneak into second place in the non-small-cell lung cancer field, if its own PD-L1/CTLA4 combos prevail over the "chemo combo" approach Roche is testing with its second-to-market Tecentriq. But BMS' choice not to pursue an accelerated approval for its Opdivo-plus-Yervoy combo has thrown doubt on that very PD-L1/CTLA4 approach.

R&D chief Sean Bohen remained upbeat about the combo's prospects, though, and Soriot—who joked that the company's EGFR-targeted lung cancer med Tagrisso has “been overshadowed”—encouraged analysts to look beyond I-O when valuing the company going forward.

“Many people are mesmerized by this Mystic study, and to a great extent, rightly so,” he said. “But you’ve got to look at everything we have.”