Alexion Pharmaceuticals said today it will eliminate approximately 20% of its workforce and relocate its headquarters from New Haven, CT, to Boston by mid 2018, under a restructuring designed to cut costs and focus the company on developing complement-inhibiting rare disease drugs.

A 20% job reduction would amount to 624 of the 3121 employees Alexion reported as constituting its workforce as of December 31, 2016, according to its Form 10-K annual report for 2016, filed in February.

The restructuring is the second disclosed by Alexion this year and the first since Ludwig Hantson, Ph.D., became CEO effective March 27. Earlier that month, the company said it was eliminating 7% of its workforce following a retreat from a key pipeline candidate and an overhaul of its top leadership.

“By streamlining our operations, we will create a leaner organization with greater financial flexibility that is highly focused on delivering for patients, growing our rare disease business, and both leveraging our leadership in complement and pursuing disciplined business development to expand the pipeline,” Dr. Hantson said in a statement.

The latest restructuring caps a year in which Alexion saw the resignations of CEO David Hallal and CFO Vikas Sinha—and named several new senior executives, including new heads of R&D, a new chief compliance officer, and a new chief human resources officer.

Also in the past year, the company acknowledged that unnamed “senior management” members pressured some customers to place “pull-in,” or advance, orders for shipments of the company’s main marketed drug Soliris® (eculizumab) in order to meet financial targets.

“Current management concluded and the Audit Committee concurred that there was a material weakness in the Company’s internal controls over financial reporting because we did not maintain an effective control environment as senior management failed to set an appropriate Tone at the Top,” Alexion acknowledged in its Form 10-Q  for the second quarter, filed July 27.

Alexion is also the subject of investigations by the U.S. Securities and Exchange Commission and U.S. Department of Justice related to its compliance with the Foreign Corrupt Practices Act in various countries; and a shareholder lawsuit first filed in December 2016 and amended in July.

The shareholder suit accuses the company and seven current or former employees of  “misrepresentations and omissions about Soliris, including alleged misrepresentations regarding sales practices, management changes, and related investigations, between January 30, 2014 and May 26, 2017″—disclosure of which resulted in a drop in the stock price, according to the suit. “Given the early stages of this litigation, management does not currently believe that a loss related to this matter is probable or that the potential magnitude of such loss or range of loss, if any, can be reasonably estimated,” Alexion stated in the 10-Q filing.

R&D, Manufacturing Cuts

Alexion said its job cuts will include R&D positions related to pipeline programs the company has previously backed away from. These include ALXN1101 (cPMP, or cyclic pyranopterin monophosphate, replacement therapy), an enzyme cofactor replacement therapy for molybdenum cofactor deficiency (MoCD) type A; and ALXN6000 (samalizumab), a first-in-class humanized monoclonal antibody designed to target the CD200 molecule, which is overexpressed in certain types of cancer.

The company also plans to consolidate its manufacturing by closing multiple sites, including a facility in Smithfield, RI, and other regional and country-based offices. Despite what it termed “a positive working relationship with the state of Rhode Island,” Alexion said it will manufacture product through other sites in the U.S. and Ireland, as well through external partners.

In addition, Alexion said, it will cut some general and administrative (G&A) functions, such as human resources, finance, and IT, in part by outsourcing some of their functions—while continuing to spend on in-house legal and compliance operations. Alexion said it would trim its commercial operations by generating cost cuts or synergies across regions and countries and reducing redundancies, “and focusing on continuity of the Company's field teams.”

Alexion has projected that it expects to incur between approximately $340 million and $440 million in pretax charges related to the restructuring—of which approximately $240 million to $300 million is expected to be recorded in 2017.

The company says it expects to generate approximately $270 million in generally accepted accounting principles (GAAP), and approximately $250 million in non-GAAP, pretax savings, each year by 2019, allowing its GAAP operating margin to grow to 37%, and its non-GAAP operating margin to 50%, in 2019.

Those savings, Alexion reasons, will enable it to spend approximately $100 million a year on R&D through a combination of business development and additional complement proof-of-concept studies starting in 2018.

Alexion finished the first six months of 2017 with net income of $335 million, up 58% from $212 million in January–June 2016, on total revenue of $1.782 billion, up nearly 23% from $1.454 billion. Top-selling drug Soliris racked up $1.597 billion in net product sales during the first half of 2017, up 17% from a year ago.

Bound for Boston

As part of its restructuring, Alexion said it will base approximately 400 positions at its new Boston headquarters, saying it was moving out of New Haven for workforce reasons.

“As the Company reorganizes to deliver on its refocused strategy, Boston will provide access to a larger biopharmaceutical talent pool and a variety of life-sciences partners to further support future growth initiatives,” Alexion stated.

However, Alexion will retain a presence in New Haven—where the company was founded in 1992 as a startup based at Science Park—by basing 450 employees in a new Center of Excellence for its complement research and process development teams.

Those employees, the company said, will include people working in the research and process development laboratories, the clinical supply and quality teams, nurse case management, and “important” enterprise business services.

Just 19 months ago, in February 2016, Alexion executives joined officials from the state of Connecticut and New Haven in a ceremony welcoming the company back to New Haven. Alexion relocated from Cheshire, CT, to become anchor tenant at 100 College Street, a new $100 million, 14-story building developed by Winstanley Enterprises.

In return, the state agreed to shell out $51 million in economic incentives through Gov. Dannel P. Malloy's First Five Program, designed to stoke job growth by larger employers. The incentives consisted of:

  • A 10-year loan of $20 million at a rate of 1% with principal and interest deferred for five years. The state offered to forgive between $16 million and the full $20 million of the loan based on Alexion creating 200 to 300 full-time jobs;
  • A $6 million grant for laboratory construction and equipment;
  • Urban and Industrial Sites Reinvestment Tax Credits of up to $25 million.

“Our new headquarters in New Haven will support the rapid growth of our company as we expand our global mission to transform the lives of patients with severe and life-threatening ultra-rare disorders,” Leonard Bell, M.D., Alexion’s founder who retired as CEO in 2015 and as chairman and director in May, said at the time in a statement.

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