Astra Zeneca news today supports negative view on the company

AstraZeneca (AZN.L) disappointed the markets today with downbeat forecast for 2010 and failed to hit fourth quarter earnings estimates. EPS (earnings per share for 2010) would be in a range of $5.75 to $6.15, down from $6.32 in 2009. Astra's core pretax profit rose 10 percent to 2.88 billion in the fourth quarter, giving earnings per share of $1.42 on sales up 9.0 percent at $8.95 billion. Analyst estimates for earnings, which exclude certain restructuring costs and charges, to come in at $1.57 per share and sales at $8.85 billion. Sales of cholesterol-lowering drug Crestor rose 20 percent to $1.26 billion, while gastrointestonal product Nexium fell 7 percent to $1.28 billion.

 Astra said that "The next five years will be challenging for the industry and for the company, as its revenue base transitions through a period of exclusivity losses and new product launches," Revenue for 2010 will be hit by the expected loss of U.S patent protection for breast cancer drug. Arimidex and asthma drug, Pulmicort.


Astra said it expected a fall in sales of up to the "mid-single-digit" in 2010 as benefits from H1N1 swine flu vaccines and unexpected revenue from heart drug Toprol XL, thanks to market withdrawal of generic competitors, wash out.


In order to mitigate the impact of patent expiries and previous failures in the R&D pipeline on future earnings, Astra said it would buy back up to to $1 billion in shares in 2010 and would cut an additional 8,000 jobs as it seeks to cut costs.


As I wrote a couple of weeks ago, Astra’s relatively low P/E (2011 forward P/E of 8) versus its industry peer group is enticing but the news today’s supports the hypothesis that there is much risk in the company’s future earnings stream. The shares are down 3% today to £29.60.