AstraZeneca – Cash concerns loom as spending continues

AstraZeneca plc (LON: AZN)’s first quarter revenue beat expectations and rose 60% to $11.4bn ignoring the impact of exchange rates. This was driven by growth in most categories, the contribution of Alexion’s portfolio of products and Covid-vaccine contracts.

Cash profits (EBITDA) fell 16% to $2.2bn, lower than market expectations. This reflected costs associated with the Alexion acquisition, including a $1.2bn charge related to the revaluation of Alexion’s inventory. A 36% increase in Research and development costs also contributed to the decline.

The group continues to expect full year revenue to rise in the high teens and earnings per share to increase by a mid-to-high twenties percentage.

Shares were broadly flat following the announcement.

AstraZeneca's earnings

Laura Hoy, Equity Analyst at Hargreaves Lansdown: 

“AstraZeneca’s product portfolio’s had a boost from its Alexion acquisition and that’s helped the group surpass revenue expectations. But the new drugs are still just a drop in AZN’s massive revenue bucket, with the entire portfolio contribution roughly $400m more than the group’s lung cancer drug, Tagrisso, on its own. The cost to bring these medicines into the fold now make up a substantial portion of the group’s debt pile and weighed significantly on profits this quarter, though.

Still, you’ve got to be able to see the forest through the trees and AZN’s got its eye on the future. Rare disease drugs are less likely to see their sales cannibalised by generics once their patents run out, so this was a smart long-term move. But we’re slightly concerned that the group could be overshooting just how difficult it will be to dig itself out from under its mounting debt pile. The group announced plans to build a new research and development centre alongside results. This will only increase the ballooning demands on the group’s cash.”

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