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AstraZeneca 4Q profit falls
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February 24, 2000: 3:34 p.m. ET
Pharmaceutical maker's operating profit slips 3%; CEO rules out mega-merger
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LONDON (CNNfn) - AstraZeneca PLC, one of the world's largest pharmaceutical companies, posted an unexpected 3 percent drop in fourth-quarter earnings Thursday as costs rose faster than sales and U.S. distributors cut down on drug purchases to reduce their inventories.
The Anglo-Swedish company said that excluding one-time items, quarterly profit from continuing operations fell to $564 million, or 32 cents a share, from $583 million, or 33 cents a share, a year earlier. The drug maker attributed the decline to unusually strong sales in the third-quarter, which took away some revenue growth in the fourth quarter.
The results fell short of the 36-cent per share predicted by analysts in a First Call Corp. survey, triggering a sell-off of the company's stock in Europe and the United States.
Shares fell 215 pence, or 10 percent, to 19.26 pounds in London and were down 22.5 Swedish crowns to 274.5 after a low of 266 crowns on the Stockholm stock exchange. In New York, AstraZeneca's (AZN: Research, Estimates) American depositary receipts fell 2-5/8, or 8 percent, to 31-1/2, in late afternoon trading, after slipping to a 52-week low of 31 earlier in the session.
The company posted a 9 percent increase in total sales for the three months, at $3.9 billion, boosted by better-than-expected revenues from ulcer drug Losec -- known as Prilosec in the United States -- the world's best-selling medicine. Profit and sales figures exclude the London-based company's agrochemical and specialty-chemical businesses, which it merged in December with the comparable units of Swiss drug maker Novartis.
The earnings decline contrasts with the generally healthy quarterly results of other big pharmaceutical companies, including a 9 percent profit rise at U.K. rival SmithKline Beecham (SBH: Research, Estimates) which is merging with Glaxo Wellcome Plc (GLX: Research, Estimates) in a deal that would create the world's largest drug maker. Meanwhile, U.S.-based Pfizer Inc. (PFE: Research, Estimates) is buying fast-growing Warner-Lambert Co. (WLA: Research, Estimates) to create the No. 2 drug maker worldwide.
Despite this wave of industry consolidation, AstraZeneca's chief executive, Tom McKillop, said his company does not intend to follow suit.
"We are big enough at this stage to grow our business strongly," McKillop told Reuters. "I am not ruling out what you may describe as bolt-on acquisitions -- what I am ruling out is a significant merger or anything like that."
AstraZeneca was formed in April 1999, when Britain's Zeneca Group bought Sweden's Astra for about $40 billion in stock, Since then, the combined company's shares have fallen about 30 percent.
Best-selling drug
Sales of Losec rose 11 percent in the quarter to $1.52 billion, accounting for 39 percent of the company's revenue. Losec faces the expiration of its main patents from next year.
In the quest for products to replace Losec, the company increased research and development spending in the quarter by 13 percent to $711 million, or 18 percent of sales from continuing operations, up from 17 percent a year earlier.
The company said a drop-off in demand from U.S. wholesalers in the quarter followed a build-up of inventory in the previous three-month period.
Costs linked to the integration of the two companies made up the bulk of one-time charges against fourth-quarter profit, which amounted to $902 million before tax, the rest relating to other restructuring measures.
Exceptional charges for the whole of 1999 totaled $1.94 billion before tax, including an $809 million payment to U.S. drug maker Merck & Co. to end an agreement by which Merck marketed Losec in the United States. Net profit for the year, including one-time items, fell 56 percent to $1.14 billion from $2.61 billion.
The company said it generated synergies worth $130 million in 1999 from the merger of Astra and Zeneca, slightly ahead of its earlier forecast.
"Decisive actions have been taken to focus on our Healthcare operations, ensuring AstraZeneca's position as a leading, global pharmaceuticals company," said McKillop in a statement.
In addition to the threat to Losec's patent protection, AstraZeneca faces the loss of patents on the hypertension drug Zestril, the cancer drug Nolvadex and Diprivan, an anesthetic, in the next three years.
Products in the pipeline include: proton pump inhibitor, Nexium, respiratory drug Viozan and Iressa, an anti-cancer agent.
McKillop said AstraZeneca aimed to have top positions in cardiovascular, oncology and in anesthesia drugs.
"We see ourselves in for a real chance over the coming five to 10 years to build our business dramatically," he said.
McKillop predicted double-digit sales growth in 2000, although "the flow-through of year 2000 advance purchases would dampen first-quarter growth in some markets." Sales growth and improved margins would translate into double-digit growth in earnings per share, he said. 
-- From staff and wire reports
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