Seroquel Patent Expiration Leads To Sharp 2Q Revenue Decline For AstraZeneca

With U.S. revenues down 29% and the EU take off by 20%, perhaps AstraZeneca’s greatest concern is only 1% revenue growth in emerging markets, which the pharma has targeted as a key revenue-driver through its patent cliff.

AstraZeneca PLC is relying on growth in emerging markets to soften the punches of blockbuster patent expiries, but its most recent quarterly results suggest that strategy is in jeopardy.

The Anglo-Swedish pharma cited the March loss of exclusivity for antipsychotic Seroquel IR (quetiapine) as the key reason for a significant decrease in revenues during the second quarter. But it also pointed to supply-chain interruptions caused by the installation of new IT systems at a manufacturing site in Sweden as causing some of the downturn. Notably, AstraZeneca said the now-resolved issues caused its emerging markets sales growth for the quarter to come in at only 1% over the previous year, whereas otherwise it would have been 8%.

All told, the second quarter of 2012 was a tough three months for AstraZeneca. Total revenue came to $6.66 billion, not only down 18% year-over-year at constant exchange rates, but off markedly from the $7.35 billion posted during the first quarter, which itself was an 11% year-over-year reduction (Also see "Brennan’s Abrupt Departure Has Some Viewing AstraZeneca As A Buyout Target" - Pink Sheet, 26 Apr, 2012.).

At the time AstraZeneca unveiled its first quarter numbers, it also announced the June 1 departure of CEO David Brennan, with CFO Simon Lowth to serve as acting CEO until the board of directors finds a permanent successor (Also see "Brennan’s Departure Not Expected To Disrupt Current Business Development Strategy At AstraZeneca" - Pink Sheet, 30 Apr, 2012.). The matter of Brennan’s successor was not addressed during AstraZeneca’s second quarter earnings call on July 26.

U.S. revenues decreased 29% during the second quarter, with generic competition to Seroquel IR accounting for 80% of the drop-off. In the rest of the world, AstraZeneca’s revenues declined by 12%, including a 20% reduction in western Europe. Declining sales of proton pump inhibitor Nexium (esomeprazole), anti-hypertensive Atacand (candesartan) and antibiotic Merrem (meropenem) were cited along with Seroquel IR generic competition as causing the falloff in that region.

A 30% revenue decrease in Canada – caused by generic competition to Atacand and generic versions of Pfizer Inc.’s Lipitor (atorvastatin) eating away at AstraZeneca’s Crestor (rosuvastatin) share – was the catalyst for a 12% revenue decline in the established rest of world outside the EU. Even in emerging markets, where revenues rose, the patent cliff was felt, as Seroquel IR and Crestor faced generic atorvastatin competition in Brazil.

Impacts Of Health Care Reform, Cost-Cutting In EU

Lowth said during the call that AstraZeneca expected the reduced financial performance, with 15% of the overall 18% in drop-off due to patent expirations. Government interventions cost the company about $300 million during the second quarter, he asserted, attributing roughly half of that to the impacts of U.S. health care reform and much of the rest to cost-cutting measures in Europe.

But while recent launches are expected to help offset the generic competition, some of those new products, like antiplatelet drug Brilinta/Brilique (ticagrelor), are off to slower starts than expected. Lowth, however, focused more on an issue he believes is solved, the supply-chain problems caused by the new IT installation in Sweden.

“Our best estimate of the impact in the second quarter is around 2% of revenue overall, but … supply issues reduced our growth rate in emerging markets from around 8% down to 1%,” he said. “Production is now well ahead of normal levels and is responding to ongoing demand, including filling back orders and restoring normal inventories in the distribution channels. We estimate the revenue impact for the full year to be around 1%.”

Asked during a question-and-answer period to detail how AstraZeneca could determine that emerging market revenues would have risen 8% on the quarter if not for the supply-chain issues, Lowth said it was a “relatively straightforward” calculation. “We can identify very specifically back orders and/or sales lost associated with the supply interruptions,” he explained. “By removing those, we expose essentially the underlying growth rate of 8%.”

Tony Zook, executive VP, global commercial operations, added that AstraZeneca anticipates a rebound in emerging markets performance during the second half of 2012, but conceded that achieving double-digit growth for the full year in those markets is now unlikely.

Firm Calls For Optimism On New Launches, Pipeline

AstraZeneca also used the call to talk up its recent launches and its pipeline, one that Wall Street analysts generally consider unimpressive. The firm noted that its clinical pipeline now includes 83 candidates, including nine new molecular entities in Phase III or under regulatory review. During the first half of 2012, 22 candidates advanced to the next phase of development, including seven that entered human testing for the first time.

However, AstraZeneca also withdrew ten pipeline projects during the first six months of 2012. In a July 26 note that rated the pharma’s stock “neutral,” Bryan Garnier & Co. analyst Eric Le Berrigaud specified atrial fibrillation drug AZD2927, anti-infective AZD5099 and asthma/chronic obstructive pulmonary disease candidate AZD1981 as the major disappointments there.

Brilinta/Brilique has been a slow starter, but sales are growing. It accounted for worldwide sales of $18 million during second quarter, up from $2 million in the second quarter of 2011. Of that total, $12 million occurred in Western Europe, mainly Germany. Pricing negotiations recently concluded in France with a launch there likely this month, the company said. U.S. sales of ticagrelor during the quarter were $3 million.

Lowth pointed to the drug’s progress in Europe while admitting “the ramp-up in the U.S. remains slow.” Deutsche Bank AG analyst Mark Clark, in a July 26 note rating AstraZeneca shares “hold,” said the drug’s sales trajectory is one of four key price drivers for the stock during the rest of the year. Consensus peak sales estimates for ticagrelor remain at about $1.5 billion, he wrote. (The other key drivers are the identity of the next CEO and his/her vision for the future, the U.S. performance of Crestor now that generic competitors to Lipitor are on the market, and any unexpected good news about the late-stage pipeline.)

Zook asserted that Brilinta is making gradual progress in the U.S., saying a recent Class I recommendation by the American Heart Association could prove very influential. “Progress is slow but steady on all key indicators: formulary acceptance, protocol adoption and trial by interventional cardiologists,” he said. “We’re slowly establishing reimbursement on Medicare Part D plans, all of this translating into a steady build in total prescriptions.”

Other recent launches, such as DPP4 inhibitor Onglyza (saxagliptin) for type 2 diabetes, have fared better, Zook noted. It produced quarterly sales of $58 million in the U.S., while worldwide sales were $79 million, up 72% year-over-year.

Meanwhile, two of AstraZeneca’s newer oncology drugs, breast cancer drug Faslodex (fulvestrant) and non-small cell lung cancer drug Iressa (gefitinib), are yielding sales that equate to annual run rates around $600 million each. Faslodex sales rose 24% during the second quarter, Zook said, while Iressa was up 13%.