REG - AstraZeneca PLC - Second Quarter & Half Year Results 2014 <Origin Href="QuoteRef">AZN.L</Origin> - Part 1
06/09/2014 22:42
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AstraZeneca PLC
31 July 2014
AstraZeneca PLC
SECOND Quarter AND HALF YEAR Results 2014
London, 31 July 2014
Revenue in the second quarter was $6,454 million, up 4%* - second consecutive quarter of revenue growth. Half year revenue
up 3%, driven by the five growth platforms.
· Brilinta: +84%, with continued momentum in the US and Europe.
· Diabetes: +128%, following successful integration of BMS assets and strong US Farxiga launch.
· Respiratory: +9%, driven by US Symbicort growth of 25%.
· Emerging Markets: +11%, with China growth of 23%.
· Japan: +1%, impacted by biennial price decreases.
Core EPS in the second quarter was $1.30, up 13%. Half year Core EPS declined 1%.
Almirall deal offers multiple benefits and long-term value to AstraZeneca's respiratory franchise, a key growth platform
and an area of strategic priority.
· Immediate and growing product revenues with earnings accretion from 2016.
· Enhances portfolio in asthma and COPD with novel bronchodilators.
Significant progress made towards achieving scientific leadership.
· 14 projects in Phase III, up from 8 a year ago.
· Strong data presented at ATS for respiratory biologics assets; at ASCO for immuno-oncology portfolio and AZD9291,
olaparib and cediranib, and at ADA for saxagliptin and dapagliflozin combination.
The Company increases its revenue and Core EPS guidance for the full year.
· Revenue is expected to be in line with 2013 at CER, an increase on our previous guidance of low-to-mid single digit
percentage decline.
· Core EPS is expected to decrease in low double digits at CER, an update on our previous guidance of a percentage
decrease in the teens.
o For planning purposes, revenue and Core EPS guidance assumes US Nexium generic enters on 1 October 2014.
o The Company continues to pursue multiple productivity initiatives and redeploy resources to fund its pipeline and growth
platforms, whilst managing its total cost base.
The Board has recommended a first interim dividend of $0.90.
Investor Day planned for 18 November 2014.
Other R&D Highlights
· Immuno-oncology asset PD-L1 (MEDI4736) commenced Phase III study in NSCLC and decision made to initiate pivotal
programme in head & neck cancer 2014.
· Tremelimumab (CTLA-4) Phase II study in mesothelioma expanded to support registration.
· Roxadustat commenced Phase III studies in CKD and ESRD.
· Olaparib programme expanded with Phase III study in adjuvant BRCAm breast cancer.
· Benralizumab programme expanded with randomisation of first patient in Phase III COPD study.
· Phase III investment decisions made for PD-L1 combination with tremelimumab, AZD9291 in 1st line NSCLC and Forxiga
in type 1 diabetes.
*All growth rates are at constant exchange rates (CER).
Financial Summary
Group 2nd Quarter2014$m Actual % CER % Half Year2014$m Actual% CER%
Revenue 6,454 4 4 12,870 2 3
Core**
Operating Profit 2,031 (1) 2 3,983 (9) (5)
Earnings per Share $1.30 8 13 $2.47 (5) (1)
Reported
Operating Profit 1,109 (8) - 1,945 (25) (17)
Earnings per Share $0.63 (4) 7 $1.03 (30) (19)
** See Operating and Financial Review below for a definition of Core financial measures and a reconciliation of Core to Reported financial measures.
Pascal Soriot, Chief Executive Officer, commenting on the results, said:
"We have made significant progress in the first half of the year, with visible momentum across our cardiovascular, diabetes
and respiratory franchises as well as strong growth in the emerging markets. This has driven revenue growth for the second
consecutive quarter and achieved a 13% increase in Core EPS in the quarter. The pace of execution of our strategy and the
underlying performance of our teams give us confidence to raise 2014 guidance for the full year.
"The business combination with Almirall will offer strategic long-term value, bringing together the two innovative
portfolios to strengthen further our commitment to respiratory disease and contribute to our growth.
"We now have one of the most exciting pipelines in the industry with 14 assets in late stage development. Over recent
weeks, we have presented compelling data that demonstrate our potential to significantly advance the way patients are
treated, including in immuno-oncology. The quality of transformation we are seeing across all core areas of our business
further underpins our confidence in AstraZeneca's longer term prospects."
Research and Development Update
______________________________________________________________________________________________________________________________________________________________________________________________________________________
A comprehensive update of the AstraZeneca R&D pipeline is presented in conjunction with this second quarter and half year
results announcement and is available on the Company's website.
The AstraZeneca pipeline continues to grow and now includes 114 projects, of which 100 are in the clinical phase of
development. During Q2 2014, across the portfolio, 19 projects successfully progressed to their next phase. This included 9
NME progressions and 10 new molecules entering first human testing. Four projects have been withdrawn.
The late stage pipeline continues to progress rapidly and there are currently 14 NME projects in late stage development,
either in Phase III or under regulatory review. In the quarter, MEDI4736 (NSCLC), tremelimumab (mesothelioma) and
roxadustat (CKD and ESRD) entered Phase III / pivotal development while olaparib (adjuvant BRCAm breast cancer) and
benralizumab (COPD) initiated further line extension Phase III studies.
In addition, the Company has made investment decisions to further expand the late stage pipeline. The Company has
previously announced its intention to start Phase III for PD-L1 in combination with tremelimumab (NSCLC) and Forxiga (type
1 diabetes). The Company has also made further Phase III investment decisions for MEDI4736 (head and neck), AZD9291 (1st
line EGFR M+ NSCLC) and olaparib (BRCAm pancreas).
The quarter has seen significant progress with regard to pipeline development, key data presentations and future
development plans. A summary of the progress:
Immuno-oncology
Significant advancement has been made in the immuno-oncology portfolio since the pipeline update at Q1 results presentation
on 24 April 2014, including:
· First patient randomisation in the Phase III PACIFIC study, investigating the efficacy of MEDI4736 as a sequential
therapy following chemoradiation in patients with locally advanced, unresectable NSCLC.
· At the American Society of Clinical Oncology (ASCO) meeting, AstraZeneca announced the Phase III investment decision
made to investigate the combination of PD-L1 and tremelimumab in 3rd line NSCLC patients to start in 2014.
· Subsequently, the Company has made the decision to initiate a pivotal programme for PD-L1 monotherapy as well as the
combination with tremelimumab in head and neck cancer in 2014.
· The ongoing randomised study with tremelimumab in unresectable pleural or peritoneal mesothelioma has been expanded
for registrational intent.
· Additional Phase I combination studies for MEDI4736 have been initiated, including combinations with Iressa and
MEDI0680 (anti-PD-1 mAb). Other combination trials, including two Phase I studies in combination with AZD9291 are planned
to start imminently.
· The Company has also signed agreements to evaluate MEDI4736 in combination with Incyte's IDO1 inhibitor, Kyowa Hakko
Kirin's anti-CCR4 antibody, mogamulizumab, and Advaxis' lead cancer immunotherapy, ADXS-HPV.
AZD9291
Significant progress has been made for AZD9291 in the quarter:
· Phase III investment decision to evaluate AZD9291 in 1st line EGFR M+ NSCLC with anticipated study start in Q4.
· Updated data from the large ongoing Phase I study was presented at ASCO. The promising results, in combination with
breakthrough therapy designation by FDA, mean the Company anticipates an accelerated filing timeline, with filing in the
second half of 2015.
· In addition, the Company announced plans to evaluate AZD9291 in combination with MEDI4736, selumetinib and
volitinib, respectively, in EGFR M+ NSCLC. These studies are planned to start in Q3.
Olaparib
On 25 June 2014, the FDA Oncologic Drugs Advisory Committee (ODAC) voted 11 to 2 that current evidence from clinical
studies does not support an accelerated approval for use of olaparib as a maintenance treatment for women with
platinum-sensitive relapsed ovarian cancer who have the germline BRCA (gBRCA) mutation, and who are in complete or partial
response to platinum-based chemotherapy.
AstraZeneca filed the US regulatory submission for olaparib in February 2014. The FDA granted priority review status for
the NDA in April and set a Prescription Drug User Fee Act (PDUFA) action date of 3 October 2014. Subsequent to the ODAC,
the FDA has extended the PDUFA Priority Review action date for olaparib. A major amendment to olaparib NDA was submitted
on 24 July 2014 by AstraZeneca. The FDA has now assigned a new PDUFA action date of 3 January 2015 to allow the Agency time
for a full review of the submission.
In the second quarter, AstraZeneca initiated a second planned Phase III study for olaparib in BRCAm breast cancer. The
OlympiA study will evaluate olaparib for a maximum of 12 months versus placebo as an adjuvant treatment in BRCAm high risk
HER2 negative primary breast cancer. The primary endpoint of the study is invasive disease free survival (IDFS).
AstraZeneca anticipates first regulatory filing in breast cancer in the US and EU in 2016.
ASCO, 30 May - 3 June 2014
AstraZeneca provided an update on the rapid development of its oncology pipeline at the ASCO meeting in Chicago with the
following highlights:
· Data from the large Phase I study of AZD9291 showed strong activity as a once-daily monotherapy. In the study, 94%
of the EGFR M+ NSCLC T790M positive (T790M+) patients saw their tumours shrink or become stable and 64% of T790M+ patients
achieved tumour shrinkage of 30% or more.
· Data from a Phase II study by the US National Cancer Institute investigating the combination of olaparib and
cediranib in patients with platinum-sensitive high-grade serous ovarian cancer showed that the combination nearly doubled
the time it took for patients' tumours to progress and improved objective response rate, compared to treatment with
olaparib alone.
· Multiple Phase I data sets for PD-L1 showed durable clinical activity and tolerability across a range of tumour
types. The results from the Phase I dose escalation study and the dose expansion phase, coupled with the pre-clinical data
and validation of this target, supported the recent acceleration of PD-L1 into Phase III.
· In addition to data presented at ASCO, AstraZeneca also provided an update on the Phase I dose escalation study of
PD-L1 in combination with tremelimumab (CTLA-4) for patients with refractory NSCLC. Early data has shown encouraging
efficacy for the combination and no dose limiting toxicities across the five dose levels assessed to date.
Epanova
On 6 May 2014, AstraZeneca announced that the FDA has approved Epanova (omega-3-carboxylic acids) as an adjunct to diet to
reduce triglyceride levels in adults with severe hypertriglyceridaemia (triglyceride levels greater than or equal to
500mg/dL).
Epanova is the first FDA approved prescription omega-3 in free fatty acid form. The dosage is 2g (two capsules) or 4g (four
capsules), making it the first prescription omega-3 to have a dosing option as few as two capsules once a day, with or
without food.
Roxadustat
Following consultation with the FDA, AstraZeneca has initiated two Phase III studies for roxadustat (HIF), one in chronic
kidney disease (CKD) patients not on dialysis and one in end-stage renal disease (ESRD) patients on dialysis. The Phase
III development programme is designed to demonstrate at least similar efficacy as recombinant erythropoietins (rEPOs) and a
sufficient number of patients will be included to show a lack of increased CV risk versus placebo in non-dialysis patients
and lower CV risk versus rEPO in dialysis.
Saxagliptin/dapagliflozin combination
On 13 May 2014, AstraZeneca announced results from a Phase III study evaluating the combination of
saxagliptin/dapagliflozin as a dual add-on therapy in adult patients with type 2 diabetes who were inadequately controlled
on metformin. Results found that patients treated with the combination plus metformin achieved significantly greater
reductions in HbA1c versus either agent alone plus metformin at 24 weeks, with an adjusted mean change from baseline HbA1c
of -1.47% in the saxagliptin/dapagliflozin combination group compared to -0.88% in the saxagliptin group and -1.20% in the
dapagliflozin group.
Overall rates of adverse events were similar between the three treatment groups, and most were reported as mild or moderate
in intensity. Improvements in glycaemic control achieved without increased risk of hypoglycaemia with more patients
reaching goal HbA1c levels of less than 7% and were associated with body weight reduction.
Bydureon Dual Chamber Pen
On 24 July 2014, the Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion in the EU for a new
Bydureon presentation, the Bydureon Pen (exenatide extended-release for injectable suspension). Bydureon is a once-weekly
medicine currently approved in the EU for adults with type 2 diabetes. The Bydureon Pen is a pre-filled, single-use pen
injector, eliminating the need for patients to transfer their medication between a vial and syringe during the
self-injection process. The Bydureon Pen contains the same formulation and dose as the original Bydureon single-dose tray,
providing the same continuous release of exenatide. The Bydureon Pen is the next step in the device development plan,
further establishing value as the ideal first injectable choice for physicians and patients. Bydureon has consistently
shown A1C reductions in the range of 1.3-1.9% with the durability of Bydureon efficacy on A1C and weight demonstrated over
6 years.
The sJNDA submission for the Bydureon Pen for the treatment of type 2 diabetes was filed in Japan on 24 April 2014.
Benralizumab
The first patient has been dosed in the benralizumab COPD Phase III Voyager programme. The programme includes two pivotal
studies, Galathea and Terranova, studying benralizumab in patients with moderate to very severe COPD with high exacerbation
risk despite receiving appropriate background therapies. The studies include patients with a range of blood eosinophil
levels to allow identification of which patients may best respond to therapy. The primary endpoint of the studies is
reduction in rate of exacerbation. Secondary endpoints include lung function (FEV1) and health-related quality of life.
Brodalumab
On 9 May 2014, AstraZeneca and Amgen announced that the Phase III AMAGINE-1 study evaluating brodalumab in patients with
moderate-to-severe plaque psoriasis met all primary and secondary endpoints for both evaluated doses. A significantly
higher proportion of patients treated with brodalumab achieved a PASI 75 response (primary endpoint), as well as PASI 90
and PASI 100 responses at week 12 (secondary endpoints) compared to placebo with as many as 41.9 percent of patients in the
210mg group and 23.3 percent of patients in the 140mg group achieving PASI 100 responses (total skin clearance) compared to
placebo (0.5 percent). The most common adverse events that occurred during the placebo-controlled period in the brodalumab
group (> 5% of participants) were nasopharyngitis, upper respiratory tract infection and headache. Serious adverse events
occurred in 1.8% of patients in the 210mg group and 2.7% of patients in the 140mg group compared to 1.4% for placebo during
the placebo-controlled period.
AMAGINE-1 is one of three Phase III studies designed to assess the efficacy and safety of brodalumab in patients with
moderate-to-severe plaque psoriasis. AMAGINE-2 and AMAGINE-3 are designed to evaluate the efficacy and safety of induction
and maintenance regimens of brodalumab at different dose schedules in patients with moderate-to-severe plaque psoriasis
compared to ustekinumab and placebo and is anticipated to report top-line results in Q4.
On 11 June 2014, Amgen and AstraZeneca announced that results from a Phase II study evaluating brodalumab in 168 patients
with psoriatic arthritis were published in The New England Journal of Medicine (NEJM). The study showed that treatment with
brodalumab significantly improved signs and clinical symptoms associated with the disease, including tender and swollen
joints, at 12 weeks as measured by a 20 percent improvement in the American College of Rheumatology response criteria
(ACR20). The study also showed that many patients continued to improve, and that the improvements were sustained, through
the first 52 weeks of the study reported in NEJM. Overall, adverse events were similar across groups with 3% of
brodalumab-treated patients experiencing serious adverse events versus 2% of placebo recipients (four patients in total).
Serious adverse events included skin infection (cellulitis, two cases), abdominal pain and inflammation of the gall bladder
(cholecystitis). No clinically significant neutropenia (> Grade 2) was reported in this study.
Amgen and AstraZeneca have initiated two Phase III studies of brodalumab in psoriatic arthritis, AMVISION-1 and AMVISION-2,
together evaluating the impact of brodalumab on improving clinical signs and symptoms in psoriatic arthritis, as well as
its ability to prevent joint damage.
American Thoracic Society (ATS), 16 - 21 May 2014
AstraZeneca provided an update on the development of its respiratory pipeline at the ATS meeting in San Diego with the
following highlights:
· In a Phase IIb study, subjects with uncontrolled severe asthma and elevated baseline blood eosinophil levels taking
benralizumab (anti-IL-5R mAb) had a statistically significant reduction in their asthma exacerbation rate (AER), as well as
improvements in lung function (FEV1) and asthma control versus subjects taking placebo over a period of one year. The Phase
III programme is underway with anticipated regulatory filing in 2016.
· In a Phase IIb study investigating patients with severe uncontrolled asthma, tralokinumab (anti-IL-13 mAb) did not
meet its primary endpoint of reduction in AER in the all-comer population versus placebo. However, reversible and
periostin-high subgroup AER reductions were 54 percent (-65, 87 percent) and when excluding subjects receiving oral
corticosteroids, 67 percent (2, 89 percent). Improved lung function (FEV1) and improvement in patient-reported measures of
asthma control (ACQ-6) and health-related quality of life (AQLQ) were observed in periostin-high subgroups of patients.
Incidence of adverse events and serious adverse events were similar for both tralokinumab and placebo cohorts and the
overall tolerability and safety profile supports further development. The Phase III programme will commence in the third
quarter.
· Results from the Phase I study evaluating inhibiting thymic stromal lymphopoietin (TSLP) for the treatment of asthma
showed treatment for 12 weeks with anti-TSLP mAb (MEDI9929/AMG 157) resulted in statistically significant reductions in
early asthmatic responses and late asthmatic responses in the airways following allergen challenges in patients with
allergic (atopic) asthma. The data also showed statistically significant decreases in baseline markers of inflammation in
the airways.
Mavrilimumab
On 12 May 2014, AstraZeneca announced that top-line results from the Phase IIb study of mavrilimumab, an investigational
monoclonal antibody that inhibits a key pathway in the development of rheumatoid arthritis, achieved its primary endpoints.
In the Phase llb study of a methotrexate inadequate responder RA population (EARTH EXPLORER-1), the co-primary endpoints of
ACR20 and Disease Activity Score (DAS28) were met with all mavrilimumab doses (low, medium or high dose) confirming the
efficacy demonstrated in the previous Phase IIa study (EARTH).
Additional study results are anticipated to be presented at a future medical conference later this year.
Sifalimumab
On 12 May 2014, AstraZeneca announced top-line results from the Phase II study of sifalimumab, a novel anti-interferon
alpha (IFN-α) monoclonal antibody being investigated as a treatment for patients with moderate to severe systemic lupus
erythematosus (SLE or lupus). The study met its primary endpoint of percentage of subjects that responded by the SLE
Responder Index (SRI-4) at Day 365. Clinically important improvements in organ-specific outcome measures (joint, skin) and
patient reported outcomes were also observed.
Additional study results are anticipated to be presented at a future medical conference later this year.
Movantik
On 12 June 2014, the majority of the FDA Anaesthetic and Analgesic Drug Products Advisory Committee (AADPAC) members voted
that the FDA should not require cardiovascular outcomes trials for the peripherally-acting mu-opioid receptor antagonist
(PAMORA) class of drugs. This class includes Movantik (naloxegol), an investigational treatment for opioid-induced
constipation (OIC) for patients with chronic non-cancer pain. Following a clarification of the vote, the majority of the
AADPAC suggested continued post-approval data collection for cardiovascular safety. The PDUFA date for Movantik is 16
September 2014. If approved, Movantik has the potential to be the first once-daily, oral PAMORA for the treatment of OIC
for patients with chronic non-cancer pain. Movantik is also under regulatory review with health agencies in the EU and
Canada.
Movantik is part of an exclusive worldwide licence agreement between AstraZeneca and Nektar Therapeutics.
BACE (AZD3293)
On 13 July 2014, AstraZeneca presented results from a Phase I study in healthy volunteers at the Alzheimer Association
International Conference (AAIC) in Copenhagen. The study showed that AZD3293 potently inhibits BACE1 leading to a
dose-dependent reduction in CSF Aβ42, Aβ40 and sAPPβ concentrations. Increase in sAPPα was also observed, but determination
was likely confounded by the known rise in overall amyloid levels associated with continuous sampling. Both sAPPα and sAPPβ
returned to baseline in a time-dependent fashion, with CSF Aβ42 showing similar kinetics to sAPPβ. PK/PD modeling indicated
a correlation to Cmax within the linear range of the sAPPβ assay. We conclude that measures of amyloid metabolism other
than Aβ42 and Aβ40 may have significant utility in determining PK/PD relationships in BACE1 inhibition.
The observations are consistent with the hypothesised mechanism of action of AZD3293 and indicate that sustained inhibition
of BACE1 leads to reduced sAPPβ concentrations and increased flux through the non-pathogenic β-secretase-mediated pathway
(sAPPα). The data strongly support the hypothesis that inhibition of BACE leads to reduced flux via sAPPβ and hence to
reduction of CSF Aβ42 concentrations.
AstraZeneca is actively considering partnering options for the future development of AZD3293.
GyrAR (AZD0914)
On 3 June 2014, the FDA designated AstraZeneca's novel investigational drug AZD0914 as a Qualified Infectious Disease
Product (QIDP) and awarded its development programme Fast Track status for the treatment of uncomplicated gonorrhoea, an
infection which is increasingly resistant to existing antibiotics and which poses a serious global public health threat.
The QIDP and Fast Track designations mean that AZD0914 is eligible for priority review by the FDA and an additional
five-year extension of exclusivity under the US GAIN Act if approved.
AZD0914 is a novel oral antibiotic entering Phase II clinical trials to investigate efficacy in treating uncomplicated
gonorrhoea and is the first of a novel class of antibiotics. Uncomplicated gonorrhoea is becoming increasingly difficult to
treat as the Neisseria gonorrhoeae bacterium has developed resistance to successive classes of antibiotics. There are
currently few treatment options and the US Centers for Disease Control and Prevention has recently designated Neisseria
gonorrhoeae an immediate public health threat that requires urgent and aggressive action.
European Society for Medical Oncology (ESMO) meeting, 26 - 30 September 2014
AstraZeneca has submitted numerous scientific abstracts across its oncology pipeline for presentation at the ESMO meeting
in Madrid. The Company will also host a briefing for analysts and investors during the ESMO conference, with anticipated
highlights:
· Further update on PD-L1 monotherapy Phase I study.
· Update on PD-L1/CTLA-4 combination in NSCLC to include: More patients, further dosing cohorts and PD-L1 biomarker
status.
· Update on AZD9291 in NSCLC, including duration of response and 1st line EGFR M+ cohorts.
· Further clinical development plans.
AstraZeneca plans to hold an Investor Day in London on 18 November 2014.
Business Development and Corporate Transactions
Strategic transaction with Almirall
On 30 July 2014, AstraZeneca announced that it has entered into an agreement to transfer to the Company the rights to
Almirall's respiratory franchise for an initial consideration of $875 million on completion, and up to $1.22 billion in
development, launch, and sales-related milestones. AstraZeneca has also agreed to make various sales-related payments.
Upon completion of the business combination, AstraZeneca will own the rights for the development, manufacture, and
commercialisation of Almirall's existing proprietary respiratory business, including rights to revenues from Almirall's
existing partnerships, as well as its pipeline of investigational novel therapies. The franchise includes Eklira
(aclidinium); LAS40464, the combination of aclidinium with formoterol which has been filed for registration in the EU and
is being developed in the US; LAS100977 (abediterol), a once-daily long-acting beta2-agonist (LABA) in Phase II; an M3
antagonist beta2-agonist (MABA) platform in pre-clinical development (LAS191351, LAS194871) and Phase I (LAS190792); and
multiple pre-clinical programmes. Under the agreement, Almirall Sofotec, an Almirall subsidiary focused on the development
of innovative proprietary devices, will also transfer to AstraZeneca.
In-licensing of Synairgen's SNG001
On 12 June 2014, AstraZeneca announced a global licence agreement with Synairgen Plc, an AIM-listed UK company specialising
in respiratory diseases, for SNG001, a novel, inhaled interferon beta (IFN-beta) in clinical development for treating
respiratory tract viral infections in patients with severe asthma. SNG001 supports the immune system by correcting a
deficiency which makes patients vulnerable to respiratory tract viral infections.
In early 2015, AstraZeneca will commence a Phase IIa study in patients with severe asthma, building on available clinical
data from an initial Phase lla trial in a broad asthma population. SNG001 also provides the opportunity to expand the
clinical programme in other pulmonary diseases including COPD.
Incyte collaboration
On 14 May 2014, AstraZeneca announced that MedImmune, its global biologics research and development arm, has entered into a
clinical study collaboration with biopharmaceutical company Incyte Corporation. The Phase I/II oncology study will evaluate
the efficacy and safety of MedImmune's investigational anti-PD-L1 immune checkpoint inhibitor, MEDI4736, in combination
with Incyte's oral indoleamine dioxygenase-1 (IDO1) inhibitor, INCB24360.
MedImmune and Incyte will collaborate on a non-exclusive basis on the study, to evaluate the combination in multiple solid
tumours including metastatic melanoma, NSCLC, squamous cell carcinoma of the head and neck and pancreatic cancer. The Phase
I part of the trial is expected to establish a recommended dose regimen of both MEDI4736 and INCB24360 and the Phase II
part of the study will assess the safety and efficacy of the combination.
Kyowa Hakko Kirin collaboration
On 30 July 2014, AstraZeneca announced that it has entered into a clinical study collaboration with Kyowa Hakko Kirin. The
Phase I/II two-armed oncology study will evaluate the efficacy and safety of two separate combinations of three
investigational compounds in multiple solid tumours. The first arm of the study will evaluate AstraZeneca's anti-PD-L1
antibody, MEDI4736, in combination with Kyowa Hakko Kirin's anti-CCR4 antibody, mogamulizumab. The second arm will evaluate
AstraZeneca's anti-CTLA-4 antibody, tremelimumab, in combination with mogamulizumab.
The Phase I part of the study is expected to establish a recommended dose regimen in both arms of the study. The Phase II
part of the study will assess the safety and efficacy of both arms of the study.
Advaxis collaboration
On 22 July 2014, AstraZeneca announced that MedImmune, its global biologics research and development arm, has entered into
a clinical trial collaboration with Advaxis, Inc., a US-based biotechnology company developing cancer immunotherapies. This
Phase I/II immunotherapy study will evaluate the efficacy and safety of MedImmune's investigational anti-PD-L1 immune
checkpoint inhibitor, MEDI4736, in combination with Advaxis' lead cancer immunotherapy vaccine, ADXS-HPV, as a treatment
for patients with advanced, recurrent or refractory human papillomavirus (HPV)-associated cervical cancer and
HPV-associated head and neck cancer.
Under the terms of the agreement, MedImmune and Advaxis will evaluate the combination as a treatment for HPV-associated
cervical cancer and squamous cell carcinoma of the head and neck. The Phase I part of the trial is expected to establish a
recommended dose regimen of MEDI4736 with ADXS-HPV, and the Phase II part of the trial will assess the safety and efficacy
of the combination.
Lung Cancer Master Protocol (Lung-MAP)
A unique public-private collaboration among the National Cancer Institute, part of the National Institutes of Health, SWOG
Cancer Research, Friends of Cancer Research, the Foundation for the National Institutes of Health, pharmaceutical companies
(Amgen, Genentech, Pfizer, and AstraZeneca including AstraZeneca's global biologics R&D arm, MedImmune), and Foundation
Medicine has initiated the Lung Cancer Master Protocol (Lung-MAP) trial.
Lung-MAP is a multi-drug, multi-arm, biomarker-driven clinical trial for patients with advanced squamous cell lung cancer.
The trial will use genomic profiling to match patients to one of several different investigational treatments that are
designed to target the genomic alterations found to be driving the growth of their cancer. This innovative approach to
clinical testing should both improve access to promising drugs for patients and ease the significant recruitment and
infrastructure burdens on researchers involved in traditional clinical trials.
AstraZeneca and MRC Laboratory of Molecular Biology collaboration
On 15 May 2014, AstraZeneca announced its intention to collaborate with the Medical Research Council Laboratory of
Molecular Biology (MRC LMB) to fund a range of pre-clinical research projects aimed at better understanding the biology of
disease.
Projects supported by the fund are likely to involve scientists from the two organisations working side by side, either
within the MRC LMB at the Cambridge Biomedical Campus, the site of the Company's future strategic R&D centre and global
corporate headquarters, or in AstraZeneca and MedImmune research facilities. As part of the planned collaboration,
AstraZeneca would contribute up to approximately £6 million ($10 million) and MRC LMB up to approximately £3 million ($5
million) over a period of five years, as well as in-kind scientific input to share knowledge and technologies. Decisions on
which projects will receive support from the fund will be made jointly by MRC LMB and AstraZeneca.
Diagnostics collaborations in oncology
On 28 July 2014, AstraZeneca announced two collaborations to develop innovative blood-based companion diagnostic tests to
support the Company's portfolio of lung cancer medicines.
A collaboration with QIAGEN is focused on the development of a circulating tumour DNA (ctDNA) test to identify NSCLC
patients who are suitable for treatment with Iressa. The two companies are seeking approval from the European Medicines
Agency for the ctDNA test, as a companion diagnostic for Iressa. AstraZeneca is also working with Roche to develop a ctDNA
test to support the global development programme for AZD9291, the Company's investigational NSCLC medicine.
These simple blood tests are less invasive, less costly methods of patient profiling. Biopsy is currently the main method
of assessing a patient's tumour mutation status.
Arrangements with Merck
On 30 June 2014, the Second Option under our exit arrangements with Merck was consummated, resulting in (i) the termination
of Merck's interests in entities that hold the US rights to Nexium and Prilosec, and (ii) the control of these entities by
AstraZeneca. At closing, AstraZeneca paid to Merck a total exercise price of $409 million, $327 million of which was fixed
in 2012 based on a shared view by AstraZeneca and Merck of the forecasts for sales of Nexium and Prilosec in the US market.
This amount is subject to a true-up in 2018 that replaces the shared forecast with actual sales for the period from closing
in 2014 to June 2018. At closing, AstraZeneca also paid to Merck an administrative fee of $10 million. In 2018, Merck will
receive an additional administrative fee of $11 million. Further details of our exit arrangements with Merck are included
from page 152 of the Company's Annual Report and Form 20-F Information for the year ended 31 December 2013.
Operating and Financial Review
All narrative in this section refers to growth rates at constant exchange rates (CER) and on a Core basis unless otherwise
indicated. Core measures, which are presented in addition to our Reported financial information, are non-GAAP measures
which management believe useful to enhance understanding of the Group's underlying financial performance of our ongoing
business and the key business drivers thereto. Core financial measures are adjusted to exclude certain significant items,
such as:
− amortisation and impairment of intangibles, including impairment reversals but excluding any charges relating to IT
assets
− charges and provisions related to our global restructuring programmes (this will include such charges that relate to the
impact of our global restructuring programmes on our capitalised IT assets)
− other specified items, principally comprising legal settlements and transaction-related costs, which include fair value
adjustments and the imputed finance charge relating to contingent consideration
More detail on the nature of these measures is given on page 76 of our Annual Report and Form 20-F Information 2013.
Second Quarter
All financial figures, except earnings per share, are in $ millions. Weighted average shares in millions.
Reported Restructuring IntangibleAmortisation & Impairments Acquisition of BMS share of diabetes alliance Other Core Core 2013 Actual% CER
2014 2014 %
Revenue 6,454 - - - - 6,454 6,232 4 4
Cost of Sales (1,307) 13 125 13 - (1,156) (1,105)
Gross Profit 5,147 13 125 13 - 5,298 5,127 3 4
% sales 79.7% 82.1% 82.3% -0.2 -0.2
Distribution (77) - - - - (77) (76) 2 2
% sales 1.2% 1.2% 1.2% - -
R&D (1,328) 105 15 - - (1,208) (1,040) 16 12
% sales 20.5% 18.7% 16.7% -2.0 -1.4
SG&A (3,058) 175 199 111 113** (2,460) (2,173) 13 13
% sales 47.4% 38.1% 34.9% -3.2 -3.0
Other Income 425 - 53 - - 478 218 120 120
% sales 6.6% 7.4% 3.5% +3.9 +3.9
Operating Profit 1,109 293 392* 124 113 2,031 2,056 (1) 2
% sales 17.2% 31.5% 33.0% -1.5 -0.6
Net Finance Expense (243) - - 93** 9** (141) (114)
Profit before Tax 866 293 392 217 122 1,890 1,942 (3) 1
Taxation (69) (64) (64)* (44) (6) (247) (432)
Profit after Tax 797 229 328 173 116 1,643 1,510 9 14
Non-controlling Interests (1) - - - - (1) (8)
Net Profit 796 229 328 173 116 1,642 1,502 9 14
Weighted Average Shares 1,262 1,262 1,262 1,262 1,262 1,262 1,252
Earnings per Share 0.63 0.18 0.27 0.13 0.09 1.30 1.20 8 13
*** Intangible amortisation includes Merck related amortisation, of which $99 million carries no tax adjustment. Contains certain items that carry no tax adjustment.
Revenue in the second quarter was up 4 percent at CER and was also up 4 percent on an actual basis as a result of the
positive impact of a strengthening Euro offsetting weakness in the currencies of Japan, Australia and certain Latin
American countries. Major patent expiries have now largely annualised with the impact in the quarter less than $100
million.
US revenues were up 8 percent. Declining sales from brands facing generic competition such as Atacand and
Seloken/Toprol-XL were more than offset by the inclusion of 100 percent of revenue from the diabetes brands and the
continued progress of our growth platforms. Crestor also grew in the quarter with net realised price more than offsetting
volume declines.
Revenue in the Rest of World (ROW) was up 1 percent. Revenue in Europe was flat, with the impact of Seroquel XR declines
resulting from adverse patent rulings in some markets coupled with "at risk" launches for generics, ongoing competitive
pressure for Symbicort and the continuing impact of loss of exclusivity for Seroquel IR, Atacand and Merrem being offset by
the inclusion of 100 percent of the diabetes revenue and continued growth from Brilique. Revenue in Established ROW was
down 9 percent, with the generic competition for Crestor in Canada and Australia and partner ordering patterns for Seroquel
IR in Japan. Revenue in Emerging Markets was up 11 percent, with a 23 percent increase in China a major driver.
Core gross margin as a percentage of revenue was 82.1 percent in the quarter, down 0.2 percentage points, as an
unfavourable mix effect and the impact of including the costs associated with brands previously accounted for as alliance
revenue more than offset the benefit of a lower Crestor royalty which resulted from the settlement of the arbitration.
Core R&D expense was up 12 percent in the second quarter. The momentum in our late stage pipeline and additional costs for
assets acquired by business development are only partially offset by the redeployment of costs and the headroom created
through restructuring initiatives.
Expenditures in Core SG&A were up 13 percent. This increase was driven by the inclusion of all the costs associated with
the diabetes portfolio as well as investment behind the launch of Farxiga in the US and continued targeted investment in
the Emerging Markets, particularly China, where such investments generate a rapid return.
Core other income of $478 million was up 120 percent this quarter driven by milestone payments of $200 million related to
the US launch of Nexium OTC and $80 million related to the Japanese launch of Forxiga without which other income would have
declined in the quarter.
Core operating profit was up 2 percent to $2,031 million. Core operating margin was down 0.6 percentage points to 31.5
percent of revenue, with the growth in other income only partially offsetting the increased investment in R&D and the
growth platforms.
Core earnings per share were up 13 percent to $1.30, ahead of the increase in Core operating profit, as the impact of a
higher number of shares outstanding and higher net finance expense were more than offset by the lower tax rate compared to
the second quarter last year (see the Taxation paragraph below for details).
Reported operating profit was flat at $1,109 million. Reported EPS was up 7 percent to $0.63. Adjustments to Core
financial measures were slightly higher than those in the second quarter 2013, with the impact of R&D impairments in the
prior year period more than offset by the inclusion of charges related to the acquisition of the BMS share of the diabetes
alliance and other costs including litigation settlements and provisions.
First Half
All financial figures, except earnings per share, are in $ millions. Weighted average shares in millions.
Reported Restructuring IntangibleAmortisation & Impairments Acquisition of BMS share of diabetes alliance Other Core Core2013 Actual% CER
2014 2014 %
Revenue 12,870 - - - - 12,870 12,617 2 3
Cost of Sales (2,760) 24 250 137 - (2,349) (2,241)
Gross Profit 10,110 24 250 137 - 10,521 10,376 1 3
% sales 78.6% 81.7% 82.2% -0.5 -0.4
Distribution (149) - - - - (149) (153) (2) (2)
% sales 1.2% 1.2% 1.2% - 0.1
R&D (2,528) 190 32 - - (2,306) (2,003) 15 13
% sales 19.7% 17.9% 15.9% -2.0 -1.5
SG&A (5,784) 266 396 185 160** (4,777) (4,228) 13 13
% sales 44.9% 37.1% 33.5% -3.6 -3.3
Other Income 296 292 106 - - 694 388 79 80
% sales 2.3% 5.4% 3.1% 2.3 2.3
Operating Profit 1,945 772 784* 322 160 3,983 4,380 (9) (5)
% sales 15.1% 30.9% 34.7% -3.8 -2.8
Net Finance Expense (441) - - 156** 18** (267) (207)
Profit before Tax 1,504 772 784 478 178 3,716 4,173 (11) (7)
Taxation (201) (163) (125)* (95) (16) (600) (908)
Profit after Tax 1,303 609 659 383 162 3,116 3,265 (5) (1)
Non-controlling Interests (3) - - - - (3) (9)
Net Profit 1,300 609 659 383 162 3,113 3,256 (4) (1)
Weighted Average Shares 1,261 1,261 1,261 1,261 1,261 1,261 1,250
Earnings per Share 1.03 0.48 0.53 0.30 0.13 2.47 2.61 (5) (1)
*** Intangible amortisation includes Merck related amortisation, of which $196 million carries no tax adjustment. Contains certain items that carry no tax adjustment.
Revenue in the first half was up 3 percent at CER and 2 percent on an actual basis as a result of the negative impact of
exchange rate movements. The impact of loss of exclusivity has now reduced and is more than offset by the Company's growth
drivers. US revenue was up 5 percent; revenue in ROW was up 2 percent.
Core gross margin was 81.7 percent, 0.4 percentage points lower than last year.
Core R&D expense in the first half was up 13 percent, reflecting the expansion of the late stage pipeline.
Expenditures in Core SG&A were 13 percent higher than the first half of last year. This increase was driven by the
inclusion of 100 percent of the costs associated with the diabetes portfolio as well as investment behind the growth
drivers such as the launch of Farxiga in the US and continued targeted investment in the Emerging Markets, particularly
China.
Core other income in the first half was up 80 percent, with a milestone related to the launch of Nexium OTC being the
largest driver.
Core operating profit in the first half was down 5 percent to $3,983 million. Core operating margin was 30.9 percent of
revenue, down 2.8 percentage points.
Core earnings per share were $2.47, down 1 percent compared with the first half last year, with the smaller decline
compared with Core operating profit largely due to the inter-governmental agreement of a transfer pricing matter. This
favourable comparison arising from the tax rate was partially offset by an increase in the number of shares outstanding and
higher net finance expense in the first half compared with last year.
Reported operating profit in the first half was down 17 percent to $1,945 million; reported EPS was down 19 percent. These
are much larger declines compared with the respective Core financial measures. Core operating profit adjusting items
totalled $2,038 million this year compared with $1,783 million in 2013, and these are applied to a lower baseline Core
operating profit in the current period.
Enhancing Productivity
The Company is making good progress in implementing the fourth phase of restructuring announced in the first quarter of
2013 and subsequently expanded in the first quarter of 2014. Restructuring charges of $293 million were taken in the second
quarter, bringing the year to date total to $772 million. This programme has been further expanded to include densification
of the Company's site in Waltham, US.
Finance Income and Expense
Core net finance expense was $141 million for the second quarter, versus $114 million in the same period of 2013. Core net
finance expense for the first half was $267 million compared to $207 million in 2013. The increase is principally due to
net pension costs and fair value movements and the effect of discounting a long-term liability. Since this liability does
not relate to a business combination, under our definition for Core financial measures the charge is not excluded from the
Core result. In the first half of 2014, Reported net finance expense includes a charge of $174 million relating to the
discount unwind on contingent consideration creditors recognised on business combinations, principally relating to the
acquisition of the BMS share of the global diabetes alliance.
Taxation
Excluding a one-off benefit of $117 million in respect of prior periods following the inter-governmental agreement of a
transfer pricing matter, the reported tax rate for the first half was 21.1 percent. Including this benefit, the reported
tax rate for the first half was 13.4 percent. The 21.1 percent tax rate is applied to the taxable Core adjustments,
resulting in an effective Core tax rate for the first half of 16.1 percent compared with 21.8 percent for 2013.
Cash Flow
Cash generated from operating activities was $3,266 million in the six months to 30 June 2014, compared with $3,804 million
in the same period of 2013, with lower operating profit being the main driver, offset by improvements in working capital.
Net cash outflows from investing activities were $4,955 million in the six months compared with $1,238 million to 30 June
2013. The increase is primarily due to higher acquisition payments in 2014, which includes $2.7 billion upfront and $449
million of contingent consideration in relation to the acquisition of the BMS share of the global diabetes alliance.
Intangible purchases of $1,490 million were higher than the same period of 2013, and included contingent payments made to
Merck during the year and a lump sum of $409 million upon exercise of the Second Option on 30 June 2014.
Net cash distributions to shareholders were $2,171 million through dividends of $2,425 million partially offset by proceeds
from the issue of shares of $254 million.
Debt and Capital Structure
At 30 June 2014, outstanding gross debt (interest-bearing loans and borrowings) was $10,074 million (31 December 2013:
$10,376 million). Of the gross debt outstanding at 30 June 2014, $2,500 million is due within one year (31 December 2013:
$1,788 million).
The Company's net debt position at 30 June 2014 was $3,959 million.
Dividends
The Board has recommended a first interim dividend of $0.90 (53.1 pence, 6.20 SEK). The amount of the dividend reflects the
Board's aim of setting the first interim dividend at around a third of the prior year dividend, which last year was $2.80.
The Board has adopted a progressive dividend policy, by which the Board intends to maintain or grow the dividend each year.
In adopting this policy, the Board recognises that some earnings fluctuations are to be expected as the Company's revenue
base transitions through this period of exclusivity losses and new product launches.
In setting the distribution policy and the overall financial strategy, the Board's aim is to continue to strike a balance
between the interests of the business, our financial creditors and our shareholders. After providing for business
investment, funding the progressive dividend policy and meeting our debt service obligations, the Board will keep under
review the opportunity to return cash in excess of these requirements to shareholders through periodic share repurchases.
The Board has decided that no share repurchases will take place in 2014 in order to maintain the strategic flexibility to
invest in the business.
Shares in Issue
In the half year, 5.4 million shares were issued in respect of share option exercises for a consideration of $254 million.
The total number of shares in issue at 30 June 2014 was 1,263 million.
Future Prospects
The Company increases its guidance for 2014:
· Revenue is expected to be in line with 2013 at CER, an increase on our previous guidance of low-to-mid single digit
percentage decline.
· Core EPS is expected to decrease in low double digits at CER, an update on our previous guidance of a percentage
decrease in the teens.
o For planning purposes, revenue and Core EPS guidance assumes US Nexium generic enters on 1 October 2014.
o The Company continues to pursue multiple productivity initiatives and redeploy resources to fund its pipeline and
growth platforms, whilst managing its total cost base.
Revenue
All narrative in this section refers to growth rates at constant exchange rates (CER) unless otherwise indicated.
A full analysis of the Group's revenue by product and geographic areas is shown in Notes 7 and 8.
Second Quarter First Half
2014 2013 CER 2014 2013 CER
$m $m % $m $m %
Cardiovascular and Metabolic disease
Crestor 1,450 1,480 (2) 2,782 2,803 -
Seloken/Toprol-XL 193 183 10 386 407 (1)
Onglyza 238 102 131 400 192 108
Atacand 139 166 (16) 261 334 (21)
Brilinta/Brilique 117 65 77 216 116 84
Byetta 88 53 61 166 95 72
Bydureon 112 32 247 192 59 224
Oncology
Zoladex 236 263 (8) 457 503 (6)
Iressa 147 156 (5) 316 324 -
Faslodex 179 173 3 351
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