AstraZeneca sees big healthcare changes under Trump

By Ben Hirschler

LONDON (Reuters) - Drugmaker AstraZeneca (NYSE: AZN) expects major U.S. healthcare changes after Donald Trump's election victory but its chief executive warned on Thursday that pricing pressures in the world's biggest drugs market would not go away.

Drug stocks surged on Trump's surprise win as fears of tough action on prices subsided, given the Republican president-elect's focus on scrapping Obamacare rather than bearing down hard on drugmakers as Democrats demanded.

"Nobody knows what the new landscape will look like. It's reasonable to assume it will change substantially," Pascal Soriot told reporters.

"The U.S. has always been a country that supports innovation and new differentiated medicines, and we hope it will remain the same. But we also believe we will continue to have to deal with price pressures."

His comments came as AstraZeneca reported lower third-quarter sales, hit by competition from multiple generic versions of its cholesterol fighter Crestor. Earnings, however, were propped up by a one-off tax gain, cost cuts and income from disposals.

The drugmaker enjoyed a tax benefit of $453 million due to agreements on transfer pricing arrangements between Canadian, British and Swedish tax authorities.

Revenue in the quarter declined 4 percent to $5.7 billion but core earnings per share (EPS), which exclude some items, rose 28 percent to $1.32.

Industry analysts had, on average, forecast quarterly revenue of $5.90 billion and earnings of 97 cents a share, according to Thomson Reuters.

Shares in AstraZeneca fell 3 percent by 0630 ET as investors looked through the 36-cents-a-share tax windfall to the weaker-than-expected results.

The group reiterated its forecast of a low to mid single-digit percentage decline in both revenue and core earnings at constant exchange rates for the full year.

"Today’s results were a little soft versus expectations but key growth drivers reassured as the company heads into its most challenging period," said Deutsche Bank analyst Richard Parkes, who recommends buying the stock.

INFLECTION POINT

Sales of new cancer drugs Tagrisso and Lynparza were bright spots in the quarter, while income from "externalization" deals, involving the sale of certain rights to products, totaled $674 million.

Selling, general and administrative costs fell by 12 percent to $1.9 billion as the company increased its focus on its primary therapy areas. Research spending was stable at $1.3 billion.

"We are still dealing with the formidable patent expiry challenge but we are showing we can deal with it and the inflection point is not that far away," Soriot said.

AstraZeneca expects to return to growth in the second half of 2017, with no patent expiries then expected until 2024.

Its long-term prospects hinge on its roster of new cancer drugs, with investors focused especially on a trial combining the immunotherapies durvalumab and tremelimumab, which will report initial results in lung cancer in the first half of 2017.

The recent failure of Bristol-Myers Squibb's (NYSE: BMY) rival immunotherapy Opdivo in previously untreated lung patients has opened up the market opportunity, but there is no certainty AstraZeneca's trial will hit its goal.

A sharp share price fall last month on a setback in two studies testing durvalumab in treating head and neck cancers shows the nervousness surrounding the firm's big cancer bet.

On the research front, AstraZeneca said it now expected the first submission for regulatory approval of its new blood cancer drug acalabrutinib to be made in the first half of 2017.

It also said it had given up on the idea of seeking an early approval of durvalumab in head and neck cancer, although this would not affect prospects for its use in a combination therapy treatment for lung cancer.

Unlike British rival GlaxoSmithKline (NYSE: GSK), which has lower-risk businesses such as consumer healthcare to buttress risky drug research, AstraZeneca is focused solely on finding new prescription medicines.

Soriot saw off a $100 billion takeover attempt by Pfizer (NYSE: PFE) in 2014 but the company has remained subject to takeover speculation.

(Editing by Jane Merriman, Greg Mahlich)

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