Acquisition of MedImmune, Inc.
The acquisition of MedImmune, Inc. was completed in June. As a result, AstraZeneca consolidated financial results include the results of MedImmune with effect from 1 June 2007. The inclusion of MedImmune increased reported sales in the second quarter by $24 million, contributed an operating loss of $103 million and had a negative impact on earnings per share of 6 cents. Included in the operating loss is intangible amortisation of $35 million and $49 million in one-off costs associated with the acquisition. Incremental interest charges of $37 million on the acquisition financing (net of MedImmuneâ€™s interest income) are included in the negative EPS impact of 6 cents.
Sales in the second quarter increased by 6 percent at CER, or 10 percent on an as reported basis (including a 4 percent positive impact from currency movements). Sales in the US were up 6 percent. Sales outside the US were also up 6 percent, on a strong 21 percent increase in Emerging Markets.
Operating profit in the second quarter was $1,973 million. Included in this are restructuring costs of $199 million associated with the previously announced Global supply chain productivity initiative and a further $177 million in charges related to new productivity initiatives. Excluding these restructuring costs and the MedImmune impact referred to above, the underlying increase in operating profit was 11 percent.
Expenditures on Research and Development were up 20 percent to $1,225 million, including $28 million in relation to MedImmune. Excluding MedImmune and $29 million inÂ restructuring costs charged to R&D this quarter, R&D expense increased 14 percent.
In the second quarter, SG&A expense increased 10 percent to $2,605 million. SG&A expenditures at MedImmune accounted for $120 million, including $35 million of amortisation of intangible assets arising from the acquisition and one-off costs of $49 million. Excluding MedImmune SG&A and restructuring costs of $148 million, underlying SG&A expense was 2 percent lower than the second quarter 2006.
Reported earnings per share in the second quarter were $0.95. Excluding MedImmune and restructuring costs, adjusted earnings per share were $1.19 compared with $1.02 in 2006, an increase of 13 percent.
The combined sales of five key growth products (Nexiumâ„¢, Seroquelâ„¢, Crestorâ„¢, Arimidexâ„¢ and Symbicortâ„¢) grew by 12 percent in the second quarter to $3,797 million.
Nexiumâ„¢ sales in the second quarter were $1,312 million, unchanged at CER. Sales in the US were down 1 percent as generic omeprazole has captured most of the growth in the US PPI market. Nexiumâ„¢ continues to gain share from the other branded PPIs. The US sales decline was offset by a 2 percent increase in Nexiumâ„¢ sales in other markets.
Seroquelâ„¢ sales increased 11 percent to $963 million in the second quarter. Sales in the US were up 9 percent as continued expansion in use for bipolar disorder has led to good volume growth, partially offset by the lower revenues per prescription for this indication. Sales in other markets were up 17 percent. The launch of Seroquel XRâ„¢ for the treatment of schizophrenia in adult patients is planned for August in the US. The regulatory filing for Seroquel XRâ„¢ in Europe is under review.
Crestorâ„¢ sales in the second quarter were up 38 percent to $678 million. Sales in the US were up 30 percent.
Sales in other markets were up 47 percent, aided by good uptake from the launch in Japan.
Arimidexâ„¢ sales increased 10 percent in the second quarter, on a 14 percent increase in the US and 7 percent sales growth in other markets.
Symbicortâ„¢ sales in the second quarter were up 25 percent to $414 million, including $30 million in stocking
sales in the US ahead of the launch on 25 June. Sales in other markets were up 15 percent.
For the first half, sales increased 8 percent at CER, or 11 percent on an as reported basis; currency movements had a 3 percent positive impact on reported sales growth. Sales in the US were up 9 percent. In other markets, sales in Established ROW were up 4 percent; 17 percent sales growth was achieved in Emerging Markets.
Combined sales of five key growth products were up 15 percent in the first half to $7,411 million, driven by strong growth in Crestorâ„¢, Seroquelâ„¢ and Symbicortâ„¢.
Reported operating profit was $4,143 million, down 1 percent at CER; currency movements had a 2 percent positive impact. Excluding $458 million in restructuring costs charged in the first half 2007 and the impact from MedImmune, underlying operating profit increased by 13 percent. Reported earnings per share were $1.97 in the first half. Excluding MedImmune and restructuring costs, adjusted earnings per share were $2.25 compared with $1.92 in 2006, an increase of 15 percent.
Management firmly believes that improving productivity and efficiency in all parts of the organisation is a strategic imperative in order to drive competitive financial performance in an increasingly challenging external environment.
In February, the Company announced a three-year programme to improve asset utilisation within the global supply chain. Since that announcement, the Company has identified, and the Board has approved, additional initiatives related to European Sales and Marketing, Information Services and Business Support infrastructure, as well as restructuring activities in Research and Development.
The aggregate cost of all of these programmes, including an expanded scope to the supply chain programme, is estimated to be $1,600 million, of which $458 million has been charged to the first half results. When fully implemented, the net reduction in positions will be around 7,600. The annual benefit when these programmes are complete is expected to be in excess of $900 million in 2010 (at current rates of exchange). All reductions in positions are subject to consultations with works councils, trade unions and other employee representatives and in accordance with local labour laws. (See page 11 for details on the costs, timings and expected benefits for each of these productivity programmes.) The Company will continue to explore further opportunities to reduce the cost base and improve future profitability, but these are unlikely to significantly impact the 2007 charge.