AstraZeneca Plc (AZN) plans to cut 2,300 sales and administrative jobs and narrow its drug-research focus in a bid to return to earnings growth as patents on its best- selling medicines expire.
AstraZeneca will concentrate on respiratory, inflammation and autoimmune diseases, cardiovascular and metabolic illnesses, and cancer, the London-based drugmaker said in a statement today as new Chief Executive Officer Pascal Soriot presented his strategy for the company to investors. It also plans to double the number of experimental treatments in late-stage development by 2016.
Today’s job cuts bring the number of positions that AstraZeneca will have eliminated since 2007 to 32,800. The company, the U.K.’s second-biggest drugmaker, is trying to recover from setbacks in developing treatments for rheumatoid arthritis, cancer and depression. The stock rose 3.1 percent, the biggest gain since Nov. 30, 2011.
“We’ve become so accustomed to bad news coming from AstraZeneca” that the stock is rising on relief that today’s announcement was benign, said Ori Hershkovitz, a partner at Sphera Funds Management Ltd., a Tel Aviv-based health-care hedge fund. “They presented their case in a very sound way.”
The job cuts, along with the elimination of 1,600 research positions announced March 18 and reductions announced in February 2012, will lead to $2.3 billion in one-time charges, of which $1.7 billion will be cash expenses, the company said today. Benefits of about $800 million a year are expected by 2016, the company said. AstraZeneca employed about 51,700 people on Dec. 31.
AstraZeneca closed at 3,133 pence in London, giving the company a market value of 39.1 billion pounds ($59.3 billion).
Analysts have speculated that Soriot, who joined the company in October, will need to make a big acquisition to jump- start growth at the company. Soriot said in an interview this week that AstraZeneca plans to return to growth through its own research and smaller acquisitions, though he wouldn’t rule out larger deals if the opportunity arises.
“I’m disappointed because Pascal didn’t see a need for a quick fix,” such as an acquisition, Fabian Wenner, an analyst with Kepler Capital Markets SA in Zurich, said in an interview. “They’re confident in their existing pipeline assets and see no need for diversification. All the others are going for diversification because it takes the pressure off the R&D engine, which at AstraZeneca is broken.”
AstraZeneca also said today it reached an agreement with Moderna Therapeutics Inc. to develop cardiovascular, metabolic and cancer drugs using Moderna’s messenger RNA technology for an upfront payment of $240 million. AstraZeneca also signed a deal with Sweden’s Karolinska Institutet to study cardiovascular, metabolic and regenerative medicine in Stockholm.
AstraZeneca will continue to be active in infection treatments, vaccines and neurology drugs, though investments will be “more opportunity-driven,” the company said. AstraZeneca bought MedImmune Inc., the maker of the FluMist nasal vaccine, for about $15.2 billion in 2007, in a deal that some investors criticized as being too expensive.
Patents are expiring on drugs that accounted for 40 percent of AstraZeneca’s peak revenue in 2011 of $33.6 billion. The company’s second-best seller, Seroquel for schizophrenia, lost U.S. patent protection last year, while Nexium for ulcers, its third-biggest seller, faces competition from generics in the U.S. next year. The cholesterol treatment Crestor, its best seller, loses U.S. exclusivity in 2016.
“We believe we can work through these patent expiries and other challenges we face and return to growth,” Soriot said on a call with reporters today. “We face many challenges over the coming years but we have real opportunities.”
The company expects to “significantly exceed” the average market forecast for revenue of $21.5 billion in 2018.
AstraZeneca is “confirming a sustained period of revenue decline in the short to medium term,” as 2018 appears to be “a world away,” Navid Malik, an analyst with Cenkos Securities Plc (CNKS), wrote in a note to investors today.
Soriot shook up management in January, divided research into three parts and said that drugs made from human cells, known as biologics, which account for almost half the pipeline, should be a platform for growth. AstraZeneca’s head of research and development and its most senior executive for worldwide sales and marketing activities have left the company.
AstraZeneca also will move its headquarters to Cambridge, England, and focus research and development at three sites, the company said March 18 when it announced the research cuts.
Soriot replaced former CEO David Brennan, who retired in June after setbacks in coming out with new medicines. Among the disappointments were an experimental antidepressant called TC-5214, which failed two late-stage trials, and the diabetes drug dapagliflozin, which didn’t win backing from the U.S. Food and Drug Administration.
“There is more to this company than people think,” Soriot said at the briefing for investors in New York. “We’re going to show people that they were wrong about AstraZeneca.”
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