Why AstraZeneca Reported Negative Growth in 2Q16



AstraZeneca’s 2Q16 revenue

In its 2Q16 results, AstraZeneca (AZN) reported a decrease of 11% in its top line at $5.6 billion. The decline was due to the expected decline in Crestor sales in US markets following its patent expiration and a decrease in externalization revenues.

At constant exchange rates, the decline in revenues included a 5% decline in product sales and ~72% in externalization revenues in 2Q16. The company estimates a low-to-mid-single-digit decline in revenues for 2016, according to its financial guidance for 2016.

The above graph shows AstraZeneca’s revenues for each quarter. Since the company has its operations in more than 100 countries and ~60% of its total revenues are reported from sales outside the United States, it’s largely exposed to currency risk.

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Growth platforms

AstraZeneca reported a gradual shift of positive contributors from key drugs such as Nexium and Synagis to new products in growth platforms, including Brilinta and new oncology products. Revenues from growth platforms increased by 9% at constant exchange rates, contributing nearly 67% to AstraZeneca’s total 2Q16 revenues. We’ll look at its growth platforms in detail in the following parts of this series.

Segment performance

AstraZeneca’s business is divided into the following four segments:

  • The cardiovascular and metabolic diseases segment is the highest revenue contributing segment, with contributions of around 38.6% of AstraZeneca’s total revenues. At constant exchange rates, the segment’s revenues declined by 11% in 2Q16 due to the decline in Crestor sales following its patent expiration. Other products, including Onglyza, Atacand, and Byetta, had weak performances.
  • The infection, neuroscience, and gastrointestinal segment is AstraZeneca’s second-largest revenue contributor. It contributed ~21.9% of the total revenues for 2Q16. At constant exchange rates, the segment’s revenues declined by ~14% during 2Q16 following the weak performance of its drugs, including Nexium and Seroquel, partially offset by an increase in Synagis revenues.
  • The respiratory, inflammation, and autoimmunity segment is another important segment for AstraZeneca’s growth platform. At constant exchange rates, the segment’s revenues increased 1% during 2Q16 with the strong performance of Pulmicort, partially offset by lower Symbicort sales. The segment also includes a few new products, including Duaklir, Daliresp, and Tudorza.
  • The oncology segment is now included in AstraZeneca’s growth platform. New products such as Tagrisso and Lynparza are expected to drive this segment’s growth in the coming years. At constant exchange rates, the segment’s revenues increased by 20% during 2Q16 following the strong performance of Faslodex. It was partially offset by lower sales of Iressa and legacy products, including Zoladex, Casodex, and Arimidex. Iressa is exposed to competition from other EGFR (epidermal growth factor receptor) inhibitors, including Tykerb from Novartis (NVS), Erbitux from Eli Lilly (LLY), and Vectibix from Amgen (AMGN).

AstraZeneca also reported ~$134 million as externalization revenues during 2Q16.

Investors can consider ETFs such as the First Trust Value Line Dividend ETF (FVD), which holds ~0.6% of its total assets in AstraZeneca, in order to divest the risk.


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