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GEN News Highlights : Mar 22, 2013
AstraZeneca Idling Another 2,300; Unveils Comeback Strategy
AstraZeneca CEO Pascal Soriot on Thursday revealed the company has begun laying off an additional 2,300 selling, general, and administrative (SG&A) employees—just three days after unveiling an R&D restructuring that will eliminate 1,600 positions—as part of a comeback strategy designed to reverse years of clinical setbacks by achieving growth and scientific leadership.
The new layoffs bring to 5,050 the number of jobs—roughly 10% of the current workforce—to be cut through 2016 by the troubled pharma giant. That’s about half of the more than 11,000 jobs AZ has announced eliminating since January 2012. AZ disclosed plans last year to cut 7,500 jobs worldwide, including its MedImmune subsidiary, placing the company atop GEN’s list of Top 10 Biopharma Layoffs of 2012. To date, AZ said, it had yet to carry out 1,150 of 2012’s planned layoffs.
AZ said it will take a $2.3 billion one-time restructuring charge for the newest layoffs, which it expects will generate $800 million in annual savings by 2016. Most of the 2,300 SG&A employees being let go in the latest layoff wave are sales staffers based in Europe, with the locations and departments of the remaining employees to be idled yet to be decided, an unnamed AZ spokesman told the Philadelphia Inquirer.
The new layoffs were announced on the day Soriot led AZ executives in detailing the company’s comeback strategy at an Investor Day event in New York. That strategy, they said, entailed focusing its portfolio on core therapy areas, with “distinctive” science and a growing late-stage pipeline.
“We are making an unambiguous commitment to concentrate our efforts and resources on our priority growth platforms and our priority pipeline projects,” Soriot said in a statement, adding: “I’m confident that we have set out on the right path to return to growth and achieve scientific leadership, and I’m equally confident that our people possess the talent, determination and focus to deliver for patients as well as our shareholders.”
AZ has struggled in recent years to recover from several late-stage clinical setbacks involving drug candidates the company had counted on to make up for sales revenues it is set to lose due to the “patent cliff” expiration of several brand-name drugs through the end of 2014.
That year, AZ will lose U.S. patent protection for two of its biggest selling drugs: its proton pump inhibitor Nexium, and its asthma and COPD medicine Symbicort. Nexium generated $3.944 billion in sales last year, down 10% from $4.429 billion in 2011; while Symbicort racked up another $3.194 billion, up 5% from $3.148 billion.
Soriot cautioned that the company’s new strategy would not necessarily yield immediate results. And he ruled out expanding AZ’s product offerings beyond prescription drugs, as several pharma giants have done in recent years: “We see no case for diversification.”
“This leaves it in a higher risk position than many of its peers however also enables it to benefit from a potentially high reward,” Fitch Ratings told investors in a statement.
Higher reward, because profit margins for pharmaceuticals are higher than for the generic and over-the-counter drugs that many of AZ’s rivals are now looking to also develop along with prescription drugs. The higher risk, Fitch said, stems from less stable revenue streams in pharma vs. generics or OTC.
“As opposed to its more diversified European peers GlaxoSmithKline, Bayer, Novartis, Sanofi, and Roche, which are expected to report low-to mid-single digit organic sales growth over the next two years—supported by the generally lower-growth but less-volatile healthcare businesses—AstraZeneca is expected by Fitch to report negative organic growth for at least that time period,” Fitch predicted.
Soriot laid out corporate priorities for AZ over the next three years:
“Based on our focused investment in key growth platforms and our pipeline, we believe we can significantly exceed current market consensus for 2018 revenues of $21.5 billion,” Soriot stated.
AZ’s Japan sales slid last year, to $2.904 billion, 5% below 2011’s $3.064 billion. But in announcing 2012 results January 31, the company saw “good performance” in Japan late in the year, after the government repealed a law restricting prescriptions for products in their first year on the market to a two-week supply.
As for alliances, AZ on Thursday announced two new collaborations. It agreed to license Moderna Therapeutics’ messenger RNA technology to develop and commercialize new drugs for cancer and “serious” cardiovascular, metabolic, and renal diseases under a deal that could net Moderna more than $420 million.
AZ also said it will join Sweden’s Karolinska Institutet to create an Integrated Translational Research Center for cardiovascular and metabolic disease and regenerative medicine. AZ will contribute up to $20 million annually, while Karolinska Institutet will contribute expertise and facilities for the center, to be located at its campus in Stockholm. The center will initially operate for five years and consist of “between 20 and 30 scientists,” many from AZ, the partners said.
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