AstraZeneca (AZ) tumbled down the proverbial patent cliff this morning, saying it will eliminate another 550 jobs by 2016, while reporting fourth-quarter and full-year earnings that fell well into double digits compared with last year, and projecting it will continue to see earnings declines this year before returning to profitability in 2017.
AZ said it will generate another $300 million in savings by expanding its “Phase 4” restructuring announced in March. Phase 4 called for combining layoffs announced in March with earlier cost-cutting efforts, eliminating a total 5,050 jobs by 2016.
That number will swell to 5,600 jobs. The extra 550 job cuts reflect the planned shutdown of an R&D site in Bangalore, India, which will affect all 168 current staffers; “a transformation of the IT organi(z)ation and infrastructure”; and a planned “exit from branded generics in certain emerging markets to further reduce costs and increase flexibility.”
The extra layoffs will raise the cost of its restructuring by $200 million, to $2.5 billion—but deliver $300 million in additional annual savings by 2016, the company said.
“These restructuring initiatives have been expanded in order to create further headroom to invest behind the pipeline and key growth platforms,” AZ said in a statement.
AZ CEO Pascal Soriot blamed “ongoing impact from the loss of exclusivity” for its 29% drop (26% down at constant exchange rates, or CER) to $1.983 billion in fourth-quarter core operating profit compared with Q4 2012, as sales slid 6% (4% at CER) to $6.844 billion.
AZ formally reported a Q4 operating loss of $591 million, with the company blaming a $1.758 billion intangible impairment charge—92% for selling, general, and administrative costs, the rest for R&D—for diabetes drug Bydureon for the loss. Sales of Bydureon have failed to match analyst expectations, though they near-doubled in the quarter to $49 million from $26 million, and quadrupled in 2013 from $37 million to $151 million.
Bydureon also accounted for a $1.10 plunge in reported earnings per share (EPS), resulting in a 42-cent reported loss per share for the quarter. Core EPS dropped 28% (25% at CER) to $1.23.
Another negative for AZ during Q4 was U.S. healthcare reform, whose overall impact was about $318 million, the company said.
Full-year 2013 numbers weren’t much better, with AZ recording a 25% drop (22% at CER) over 2012 in core operating profit, to $8.39 billion, on sales that slumped 8% (6% at CER) year-over-year to $25.711 billion.
AZ will lose U.S. patent protection this year for two top-selling drugs, the proton pump inhibitor Nexium and the asthma and COPD medicine Symbicort. During 2013, Nexium generated $3.872 billion while Symbicort sales inched up 1% to $3.483 billion.
Symbicort racked up $976 million in sales during Q4, up 11% from a year earlier, though its chief competitor, GlaxoSmithKline’s rival asthma treatment Seretide/Advair, also saw sales rise 9% during the quarter to £1.398 billion ($2.281 billion).
AZ says patent expirations cost the company $2.2 billion in revenue at CER last year.
“In the near term, these headwinds will remain challenging; however, I am confident that we can return to growth faster than anticipated and expect our 2017 revenues will be broadly in line with 2013,” CEO Pascal Soriot said in a statement.
For 2014, AZ said it expects a “decline in the teens” at CER in core earnings per share, as well as “a low-to-mid single digit percentage decline” in revenue at CER. Those forecasts assume that a generic version of Nexium will be launched in May.
However, AZ restated its optimistic forecast that revenues will bounce back to the 2013 level by 2017, two years ahead of an earlier company forecast.
AZ also trumpeted ongoing efforts to strengthen its pipeline. These include the presence of 11 NMEs in Phase III or registration phases, almost double the number a year ago, as well as the company's acquisition of Bristol-Myers Squibb’s diabetes business in a deal that could reach more than $4 billion.
However, over the past six months, AZ jettisoned 15 R&D programs involving 14 compounds, according to an updated version released today of its development pipeline as of December 31.
Two of the programs were for fostatinib, for which AZ took a $136 million pre-tax impairment charge and returned rights to Rigel after it failed the Phase III OSKIRA-3 trial for a rheumatoid arthritis (RA) indication. AZ said it ended fostatinib’s programs for RA and blood malignancies. AZ cited only “safety/efficacy” as its reason for ending both programs.
Other terminated programs included:
- Three Alzheimer’s disease compounds to which AZ returned rights to Targacept—AZD1446, AZD3480, and AZD5213. The first two were ended for “safety/efficacy”; the third, for “hypothesis risk.”
- Three COPD compounds—AZD5423 and AZD7594, both ended for “safety/efficacy,” and MEDI7814, terminated for unspecified “economic” reasons.
- Two other respiratory disorder compounds—MEDI4241 for asthma; MEDI557 for respiratory syncytial virus (RSV) in high-risk adults, such as those with COPD, CHF or “other” disorders.
- Two cancer compounds—AZD8330 (ARRY424704), for solid tumors, and MEDI575, for non-small cell lung cancer.
- Three additional compounds—tralokinumab for ulcerative colitis, MEDI5117 for osteoarthritis pain, and AZD6765 for major depressive disorder.