AstraZeneca's core numbers hide pharma firm's progress

Not for the first time results today from AstraZeneca (Swiss: AZN.SW - news) (AZ (Stuttgart: A1131G - news) ), the UK's second-largest drug maker, are something of a curate's egg.

If there is cause for disappointment, it is that 2017 sales, at $22.5billion, were down 2% on 2016.

Pascal Soriot, chief executive, had previously promised that 2017 would be the year that the Cambridge-based company's sales would start to grow again.

Yet it ought not to have come as a surprise, given updates from AZ throughout the last year .

And the good news is that, during the final three months of last year, AZ has, for the second consecutive quarter, achieved sales that were better than expected - while the 2% fall for the year as a whole was also better than the firm's City followers had been pencilling in.

The same applies to the earnings. Headline pre-tax profits fell by 37%, to $2.3bn, due to higher costs and a decline in margins.

Yet core operating profit, AZ's preferred measure, of $1.79bn during the final three months of the year was also better than expected - even if it was flattered by some one-off tax gains.

So those are the numbers. The real meat of the statement came in news that product sales were actually up by 4% during the final three months of the year.

That is important because there has been unease that AZ's total sales have been flattered in recent times by so-called "externalisation" revenues - which come from collaborations with third parties - and at a time when product sales, which make up the vast majority of AZ's sales, have been falling.

So this is encouraging and not least because, more than any other global drugs company, AZ has been suffering from a "patent cliff" in which drugs are no longer protected by patent and therefore more vulnerable to cheap copycat versions.

The rise in product sales suggests the impact of such patent expiries may be past its worst - good news for Mr Soriot, who successfully fought off Pfizer (NYSE: PFE - news) 's unwanted bid in 2014 by convincing shareholders AZ's product pipeline was so strong they had more to gain, over the long run, from it remaining an independent company than by selling out for a short term profit.

Accordingly, Mr Soriot argued today that AZ is "steadily turning a corner", highlighting that Brilinta, its heart attack drug, and Farxinga, its diabetes treatment, both achieved "blockbuster" status in the year by their sales going above $1bn for the first time.

It is worth noting that neither are gaining sales sufficiently yet to make up for the decline in sales in existing blockbusters now shorn of patent protection, such as asthma treatment Symbicort, anti-cholesterol treatment Crestor and peptic ulcer treatment Nexium, are losing them. These latter three alone still account for 36% of AZ's product sales.

But that is no cause for downheartedness. Possibly the most eye-catching development over the last 12 months concerns Tagrisso, AZ's lung cancer drug, which saw sales more than double during the year and which should achieve blockbuster status during 2018.

It recently won approval from Chinese regulators, emphasising the importance to AZ of China, which now accounts for more than 10% of the company's total sales.

It was not for nothing that Mr Soriot was among the business leaders accompanying Theresa May on her trip to China this week.

Another point of interest is that while AZ has traditionally been best known for its expertise in treatments for respiratory ailments and in the treatment of cardiovascular and metabolic diseases, cancer treatment is becoming an increasingly important therapy area for the company.

Oncology last year accounted for a fifth of product sales and as Tagrisso and Lynparza, a treatment for ovarian cancer, continue to build momentum, that will only increase.

Mr Soriot also namechecked Calquence, a blood cancer treatment approved by US regulators at the end of October and Imfinzi, a relatively new bladder cancer treatment, as ones to watch.

AZ is probably not growing at the speed at which Mr Soriot promised it would be at this stage when, nearly four years ago, it escaped Pfizer's clutches.

The failure of the so-called "Mystic" trial last summer, combining immunotherapy with oncology, was undoubtedly a disappointment.

But, crucially, the company is doing enough to prove that it is moving in the right direction and delivering on promises made during the takeover battle and share price growth on Friday showed investors were satisfied with the progress.