AstraZeneca PLC (AZN) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals strong financial performance, product development, and strategic growth plans, particularly in oncology and respiratory. Despite some headwinds in China, recovery is expected. The Q&A highlights confidence in key trials and growth drivers, with management addressing concerns effectively. Overall, the positive outlook and strategic focus on high-growth areas suggest a positive stock reaction.

Key Financial Performance

Revenue Revenue grew 8% year-over-year, with product revenue growing 10%. This growth was driven by continued global demand for innovative medicines.

Core EPS Core EPS grew by 11% year-over-year. This was attributed to strong financial performance and operational leverage.

Oncology Revenue Oncology delivered total revenues of $25.6 billion, an increase of 14% year-over-year (17% excluding a 2024 Lynparza sales milestone). Growth was driven by key medicines like Tagrisso, Imfinzi, Calquence, and Enhertu.

Rare Disease Revenue Rare disease delivered total revenue of $9.1 billion, up 4% year-over-year. Growth was driven by neurology indications, increased patient demand, and global expansion.

BioPharmaceuticals Revenue BioPharmaceuticals medicines delivered total revenue of $23 billion, up 5% year-over-year. Growth medicines substantially outpaced the impact of generic entry on brands like Brilinta and Farxiga.

Cash Flow from Operating Activities Cash flow from operating activities increased by 23% to $14.6 billion year-over-year. This was driven by strong financial performance and operational efficiency.

CapEx CapEx increased by $1.1 billion to $3.3 billion year-over-year. This was in line with expectations and aimed at expanding capacity to support future growth.

Gross Margin Core gross margin landed at 82% in 2025, consistent with expectations. Seasonal patterns and royalty buyouts for Saphnelo and rilvegostomig impacted the margin.

SG&A Expenses SG&A expenses increased by 3% year-over-year, reflecting cost discipline and focus on operating leverage. As a proportion of total revenue, SG&A expenses decreased from 28% in 2024 to 26% in 2025.

R&D Expenses Core R&D expenses increased by 12% year-over-year, reflecting investments in a broad and deep pipeline with over 300 active trials, including more than 100 in Phase III.

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Operating Highlights

Revenue Growth: Revenue grew 8% in 2025, with product revenue increasing by 10% driven by global demand for innovative medicines.

Blockbuster Medicines: The company had 16 blockbuster medicines in 2025, with 17 medicines growing at double digits. The goal is to reach 25 blockbusters by 2030.

Pipeline Progress: 16 positive Phase III trial readouts in 2025 with a combined peak-year sales potential of $10 billion. Over 100 Phase III trials are ongoing, with 20 expected to read out in 2026.

New Technologies: Investments in weight management, ADCs, radioconjugates, and next-generation IO bispecifics. Oral GLP-1 receptor agonist and other innovative mechanisms are advancing.

Geographic Expansion: Strong growth in emerging markets outside China (22%) and continued leadership in China with 4% growth despite generic competition.

Regional Diversification: Diversified revenue streams across regions, reducing concentration risk. Growth in the U.S. (10%) and Europe (7%).

Operational Efficiency: SG&A expenses decreased from 28% to 26% of total revenue in 2025, reflecting cost discipline and operating leverage.

Cash Flow: Operating cash flow increased by 23% to $14.6 billion in 2025. CapEx investments are expected to increase by one-third in 2026 to support growth.

Long-term Growth: The company aims to achieve $80 billion in revenue by 2030 and sustain growth beyond 2030 through investments in R&D and transformative technologies.

Rare Disease Expansion: Rare disease portfolio expanded to over 75 countries, with Ultomiris and other medicines driving growth.

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Risk or Challenges

Patent Expiry: The company faces challenges due to the patent expiry of Brilinta and Farxiga in the U.K., with more expiries expected in 2026. This could impact revenue growth in the CVRM segment.

Generic Competition: Farxiga is expected to face generic competition in the U.S. starting April 2026, which will likely lead to a decline in revenues in this market.

China VBP Implementation: The implementation of Volume-Based Procurement (VBP) in China for Farxiga, Lynparza, and roxadustat in Q1 2026 presents a headwind for revenue growth in this region.

Biosimilar Competition: The rare disease segment is impacted by biosimilar competition for Soliris, which has led to a decline in its revenues.

Regulatory and Market Access Challenges: The company faces challenges in gaining regulatory approvals and market access for new medicines, which could delay revenue realization from its pipeline.

High R&D Expenses: The company has a growing number of investment opportunities in its pipeline, leading to a 12% increase in R&D expenses in 2025. This could pressure operating margins.

Economic and Regional Disruptions: Despite a diversified portfolio, the company acknowledges risks from regional disruptions, which could impact its global operations.

Medicare Part D Reform: The introduction of a 20% manufacturer liability under Medicare Part D reform has created headwinds for the oncology segment.

Emerging Market Risks: While emerging markets outside China grew by 22%, the company faces risks related to economic and political instability in these regions.

Operational Complexity: The company’s extensive pipeline and global operations create challenges in prioritization and execution, which could impact efficiency and timelines.

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Guidance & Outlook

Revenue Growth: Total revenue is anticipated to grow by a mid- to high single-digit percentage in 2026, driven by strong underlying momentum in the business despite known headwinds such as VBP in China and loss of exclusivity for Farxiga in the U.S.

Core Gross Margin: Expected to remain broadly flat to slightly higher in 2026, driven by product sales mix and backing out royalty buyouts.

Core EPS Growth: Projected to grow by a low double-digit percentage at constant exchange rates in 2026.

Capital Expenditures (CapEx): CapEx investment is expected to increase by approximately one-third in 2026 compared to 2025, supporting future growth and capacity expansion in the U.S., China, and Singapore.

R&D Investments: R&D expenses are anticipated to be at the upper end of the low 20s percentage range of total revenue in 2026, focusing on emerging areas such as ADCs, cell therapy, bispecifics, and late-stage CVRM portfolio.

Dividend Policy: The annual declared dividend is set to increase to $3.30 per share in 2026, in line with the progressive dividend policy.

Farxiga Revenue Impact: Farxiga revenues in the U.S., Japan, and China are expected to decline in 2026 due to VBP implementation in China and the first generic competition in the U.S. starting in April. However, strong demand growth is anticipated to continue in Europe and emerging markets.

Pipeline and Product Approvals: Key pipeline developments and product approvals are expected in 2026, including Imfinzi combinations, Enhertu expansions, and new launches such as baxdrostat in hypertension and sone-ve in gastric cancer.

ATTR Cardiomyopathy: The CARDIO-TTRansform trial for Wainua is expected to read out in the second half of 2026, targeting a robust composite of cardiovascular mortality and recurrent cardiovascular clinical events.

COPD Treatment: Phase III trials for tozorakimab in COPD are expected to read out in the first half of 2026, potentially redefining management of the disease.

Weight Management Portfolio: The oral GLP-1 receptor agonist elecoglipron is progressing into Phase III development in 2026, with additional first Phase II data expected for other weight management candidates.

Rare Disease Growth: Ultomiris is expected to continue growing in 2026, driven by neurology indications and further market expansions. Peak-year sales for Ultomiris are projected to exceed $5 billion.

Long-Term Growth Beyond 2030: The company is investing in transformative technologies and new medicines to sustain growth beyond 2030, with a focus on weight management, ADCs, radioconjugates, and gene therapy.

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Shareholder Return Plan

Dividend Increase: AstraZeneca announced a second interim dividend of $2.17 per share, resulting in a full-year 2025 declared dividend of $3.20 per share. For 2026, the company intends to increase the annual declared dividend to $3.30 per share, in line with its progressive dividend policy.

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Key Q&A

Q:What is the growth potential beyond 2030 and the $10 billion risk-adjusted peak sales potential?

A:Management discussed the $10 billion risk-adjusted peak sales potential, emphasizing the importance of identifying the right patient population and leveraging AI and multimodal models to improve success rates in oncology. They highlighted key projects like EMERALD-3, SERENA-4, and PAC-9 as major growth drivers.

Q:What is the outlook for China in 2026, including profitability and new launches?

A:China's performance in 2025 gives confidence for 2026. Key headwinds include VBP for Farxiga, roxadustat, and Lynparza, but recovery is expected for Farxiga due to strong brand loyalty. Tailwinds include growth from new launches like Fasenra, Truqap, and Calquence tablets. Profitability in China remains lower than the group average due to lower prices but is offset by high volume and unmet needs.

Q:What are the implications of the lidERA result for the SERENA-4 trial design?

A:SERENA-4 was designed to enrich for endocrine-sensitive components of the first-line setting, with specific criteria for patient recruitment. Management expressed confidence in the trial design and its potential to prevent the emergence of ESR1 mutations.

Q:What is the rationale for moving elecoglipron to Phase III?

A:Management expressed confidence in elecoglipron's competitive profile as a monotherapy, stating that the decision to move to Phase III was based on its strong efficacy and not reliant on combinations.

Q:What is the potential of efzimfotase alfa and its trials?

A:Efzimfotase alfa targets a broad population, including pediatric, adolescent, and adult patients. Its potential lies in being easier to administer than Strensiq, with a projected value several times higher if efficacy and safety are demonstrated.

Q:What is the significance of TROPION-Lung07 and TROPION-Lung08 trials?

A:TROPION-Lung07 includes a biomarker in its protocol, while TROPION-Lung08 focuses on PD-L1 >50% patients. Both trials aim to position Datroway as a key component in the first-line setting for lung cancer.

Q:What is the growth potential for Calquence?

A:AMPLIFY is expected to drive growth for Calquence, particularly in the U.S., where finite therapies are gaining traction. Additional opportunities include second-line MCL and DLBCL with ESCALADE.

Q:What is the design and potential impact of the CARDIO-TTRansform trial?

A:CARDIO-TTRansform is the largest trial in ATTR cardiomyopathy, designed to evaluate the additive benefit of silencers on stabilizers. It includes hard cardiac endpoints and aims to inform treatment guidelines.

Q:What is the differentiation of tozorakimab in COPD?

A:Tozorakimab is differentiated by its ability to inhibit both ST2 and RAGE EGFR pathways, impacting mucus production and epithelial remodeling. The trial design targets a broad population, including smokers and varying eosinophil levels.

Q:What is the rationale for AstraZeneca's focus on obesity and oral relaxants?

A:Management believes the obesity market is still immature, with opportunities in combination therapies and international markets. They emphasized the importance of addressing lean muscle preservation and visceral fat reduction.

Q:What are the growth drivers for 2026 outside of oncology?

A:Respiratory and immunology portfolios, including Breztri, Tezspire, and Fasenra, are expected to grow double digits. Baxdrostat is also seen as a multibillion-dollar opportunity.

Q:What is AstraZeneca's approach to capital allocation and growth beyond 2030?

A:AstraZeneca focuses on early-stage BD investments to build its pipeline and create shareholder value. The company aims to balance R&D investments with maintaining a strong financial position.

Q:What is the potential of subcutaneous formulations in AstraZeneca's portfolio?

A:Subcutaneous formulations are being explored across immuno-oncology, ADCs, and T-cell engagers to offer convenience to patients.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the implications of the lidERA result on the commerciality of CAMBRIA-1 and CAMBRIA-2, as well as the specific competitive advantages of AstraZeneca's obesity strategy in a crowded market.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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