Cost savings help AZ, but MedImmune purchase drags results down

AstraZeneca (AZ), the UKís second-largest drug company, has cut its full year earnings per share guidance, after it revealed a 10 per cent drop in Q2 FY07 pre-tax profits, affected by losses from the recent MedImmune acquisition and associated restructuring costs.

Q2 FY07 sales increased 10 per cent and included a four per cent positive impact from currency movements. Sales in the US were up six per cent. Sales outside the US were also up six per cent, on a strong 21 per cent increase in emerging markets.

Operating profits in Q2 FY07 was USD 2bn, which include restructuring costs of USD 199m associated with the previously announced global supply chain productivity initiative and a further USD 177m in charges related to the new productivity strategy.

For Q2, AZís R&D spend was up 20 per cent to reach USD 1.2bn, which includes USD 28m in relation to the MedImmune purchase. SG&A expenses increased 10 per cent to USD 2.6bn. SG&A expenditures at MedImmune accounted for USD 120m, including USD 35m of amortisation of intangible assets arising from the acquisition and one-off costs of USD 49m.

Reported EPS in Q2 FY07 were USD 0.95. Excluding MedImmune and restructuring costs, adjusted EPS were USD 1.19, compared with USD 1.02 in the same period of FY06, an increase of 13 per cent. Reported EPS were USD 1.97 in H1 FY07. Excluding MedImmune and restructuring costs, adjusted EPS were USD 2.25, compared with USD 1.92 in H1 FY06, an increase of 15 per cent.

The combined sales of five key growth products (Nexium, Seroquel, Crestor, Arimidex and Symbicort) grew by 12 per cent in Q2 FY07 to USD 3.8bn.

Reported operating profit was USD 4.1bn, down one percent. Currency movements had a two per cent positive impact. Excluding USD 458m in restructuring costs charged H1 FY07 and the impact from MedImmune, underlying operating profit increased by 13 per cent.