AstraZeneca is ramping up its focus on cancer treatments and cutting costs to stem a slide in profits caused by expiring patents.
Britain’s second largest drugmaker reported a 5% rise in revenues at constant exchange rates to £6.1bn in the first three months of the year, ahead of its annual meeting. However, revenues were only up 1% at actual exchange rates and core operating profit fell 12% to £1.6bn, partly due to a 15% rise in research and development spending following a series of acquisitions.
AstraZeneca is focusing on six areas – respiratory, diabetes, the heart drug Brilinta, emerging markets, Japan and cancer – as it works on new treatments to replace lost revenues from blockbuster drugs that come off patent. Its bestselling cholesterol pill Crestor faces generic competition in the US from next week.
The chief executive, Pascal Soriot, highlighted double-digit sales growth in China, a shift towards specialty care and progress with new cancer treatments, which contributed $99m (£68m) of revenues in the first quarter.
The firm’s new lung cancer tablet Tagrisso has recently been approved by regulators in Europe and Japan, and is on track to generate annual peak sales of $3bn, he said. Another promising new treatment is Lynparza for advanced ovarian cancer, which has launched in 24 countries.
Soriot is streamlining the company’s sales and manufacturing operations to save $1.1bn a year, which will mean job cuts in AstraZeneca’s salesforce outside Britain. He said the impact on the UK would be minimal. This will result in a $1.5bn restructuring charge this year, mainly related to redundancy and severance costs.
AstraZeneca said it would plough some of the money saved into cancer treatments. It is developing several immuno-oncology drugs, which harness the body’s immune system to fight tumours, but faces tough competition from rivals, notably Bristol-Myers Squibb.
At its AGM in London on Friday afternoon, the drugmaker is likely to face questions from shareholders over why it has not linked the pay of its chief executive to the ambitious sales target of £45bn by 2023, up from $26bn last year.
Soriot announced the goal when he was fighting off a £70bn takeover bid from its US rival Pfizer two years ago. Royal London Asset Management, which owns 1% of AstraZeneca’s shares, has voted against Soriot’s £8.4m pay package for 2015.
Ketan Patel of EdenTree Investment Management said: “Long-term investors in AstraZeneca will be questioning the decision of management to rebuff the offer made by Pfizer in 2016 which valued the company at £70bn, a long way from the current market value of £50bn. The shares have fallen 12% since the start of the year on a total return basis versus the 2% return from the FTSE 100. The company is facing strong generic competition on its two flagship products – Crestor and Nexium.”
Shareholder advisory firm PIRC has recommended investors vote against executive pay packages at AstraZeneca and its bigger British rival GlaxoSmithKline, which is holding its AGM next week, arguing that their incentive payments are excessive.
Soriot’s bonus and long-term incentives amounted to 580% of salary last year and he got paid 64 times as much as the average employee, PIRC said. The variable pay of his counterpart at GSK, Sir Andrew Witty, who will stand down next year, was 460% of salary and he earned 56 times as much as the average employee at his company.
AstraZeneca’s remuneration committee is looking at ways to link pay more clearly to the 2023 revenue target. However, the company insists that while some shareholders would like to see a direct link between executive pay and the target, “that is not necessarily the view of the majority”.
The London-listed drugmaker Shire suffered a damaging investor revolt at its meeting in Dublin on Thursday when a pay vote just squeezed through with only 50.5% backing the pay package for the chief executive, Flemming Ørnskov.
