AstraZeneca’s Outlook Disappoints Amid Profit Margin Concerns

(Bloomberg) -- AstraZeneca Plc reported lower-than-expected profit and a forecast for this year that failed to allay concerns about margins.  

Earnings rose to $1.45 a share in the fourth quarter, falling short of analysts’ estimates, as the UK drugmaker spent more to launch new drugs like Airsupra for asthma. The stock dropped as much as 2% in early London trading, bring its decline over the past six months to almost 7%. 

Chief Executive Officer Pascal Soriot is clinching deals to muscle into new fields like weight loss after reaping the benefits of a risky bet on cancer that transformed the drugmaker’s pipeline. 

Demand for blockbuster cancer medicines like Tagrisso and Lynparza are fueling sales growth but there’s concern about a newer drug called datopotamab deruxtecan, or Dato-DXd, which emerged from a collaboration with Daiichi Sankyo. Investors are waiting to see if it gains regulatory approval this year after mixed results in clinical trials. 

Astra entered the obesity drug race late last year with a deal to develop an experimental pill that is still in early-stage tests. 

Earnings per share this year will likely rise by a percentage in the low double-digits to low teens excluding some items, the drugmaker said Thursday. Sales growth will be similar, it said. The forecast is robust for sales but “just shy” on earnings, suggesting less profit margin expansion than expected, Peter Welford and Lucy Codrington, analysts at Jefferies, wrote in a note to clients.   

“Margin clarity may be needed for stock upside,” they said. The drugmaker may raise its estimates as the year advances, according to Bloomberg Intelligence, which called the guidance conservative. 

What Bloomberg Intelligence Says:

AstraZeneca’s initial 2024 guidance projection appears conservative, implying little if any operating-margin progress. Targeted low double-digit to low-teens constant-currency total revenue and core EPS growth is one of the strongest among peers, but with 2-3 new product launches projected this year, we don’t think SG&A can grow in line with sales, helping margin. Adjusted EPS upgrades could then follow as the year progresses.

— John Murphy, BI pharma analyst

The Cambridge-based company has been one of the few Western drugmakers to make significant inroads into China, the latest being a deal to buy local cell therapy developer Gracell Biotechnologies Inc. to gain a so-called CAR-T therapy that modifies a patient’s own immune cells to fight cancer. 

“China has become a fundamental part of our industry,” Soriot said in an interview on Bloomberg Television, touting the country’s “enormous innovation.”

--With assistance from Angela Feliciano.

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