Emerging Markets Keep Astra on Top of Patent Cliff

Strong growth in emerging markets and new drug launches helped AstraZeneca mitigate second-quarter losses due to generic competition

Damien Conover, CFA 29 July, 2011 | 11:58AM
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AstraZeneca (AZN) reported second-quarter results that were largely in line with our expectations, and we don't anticipate any changes to our fair value estimate. Total sales decreased 2% internally from the prior-year period as generic competition weighed on growth. While the top line came in slightly above our expectations, the bottom-line decline of 5% was slightly worse than our forecast.Higher-than-expected marketing and administrative costs led to the accelerated decline in earnings. Nevertheless, the company increased its full-year earnings per share guidance range by 1%, to $7.05-$7.35, largely due to changes in exchange rates and expected increases in share repurchases. We expect the company will meet its increased range.

Generic competition weighed on total sales growth in the quarter and we expect this trend will continue for several more quarters as Astra is facing a prolonged period of patent losses.Partly offsetting the generic competition, growth in emerging markets remains strong.We expect continued gains in the emerging markets based on the rapid wealth growth in these nations and the high correlation between income and drug spending. Also, Astra's high spending in building out its presence in emerging markets should enable the firm to fully catch the strong demand tailwinds.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
AstraZeneca PLC10,436.00 GBX0.13Rating

About Author

Damien Conover, CFA  is an equity analyst and associate director at Morningstar.

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