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AstraZeneca announced Thursday alongside its fourth-quarter financial results that it will cut its global workforce by approximately 7300 positions in an effort to deliver a further $1.6 billion in annual cost savings by the end of 2014. The new restructuring programme, which the company said is "designed to improve productivity and strengthen" its various operations, follows cuts of around 21 600 positions since 2007.
CEO David Brennan noted that "while the further expected losses of market exclusivity make for a challenging 2012 outlook, we remain committed to a long-term, focused, R&D based strategy.” Patents on Seroquel and Nexium are scheduled to expire between now and 2015, while Crestor will lose exclusivity in the US in 2016. Brennan remarked that "since 2007, when we announced our first major restructuring programme, we have taken decisive steps to improve returns on investment, recognising that this demands concerted, enterprise-wide action. Today’s initiatives should be seen in this strategic context."
The drugmaker said that the job reductions are expected to cost $2.1 billion, with $261 million of this charged during the fourth quarter of 2011. According to AstraZeneca, approximately 3750 positions will be affected by the programme across its selling, general and administrative functions, with a further 2200 jobs being cut from its R&D operations. The company said it will restructure its neuroscience therapy area, and will create a “virtual” neuroscience unit made up of a team of around 40 to 50 scientists who will work closely with external partners.
AstraZeneca's president of R&D Martin Mackay said "we’ve made an active choice to stay in neuroscience though we will work very differently to share cost, risk and reward with partners in this especially challenging but important field of medical research.” As such, the company indicated that it will halt R&D at sites in Södertälje, Sweden and Montreal, Canada, with the latter facility closing. The drugmaker added that around 1350 positions will also be affected by the restructuring within its operations functions.
For the fourth quarter, the company posted an 8.3-percent drop in profit to $1.5 billion, missing analysts' forecasts of $1.7 billion, as revenue was flat at $8.7 billion, coming in ahead of estimates of $8.6 billion. The drugmaker noted that generic competition cost it $450 million during the three-month period, although sales in the US were up 5 percent at $3.6 billion, which included a 3.2-percent negative impact from the implementation of healthcare reform measures in the country.
Quarterly sales of Crestor jumped 12 percent to $1.8 billion, compared with the year-ago period, driven by strong US growth, while annual revenue from the drug grew 16 percent to $6.6 billion. Seroquel rose 15 percent on a constant currency basis to $1.5 billion in the fourth quarter, and increased 8 percent for the full year to $5.8 billion. Nexium sales fell 13 percent to $1.1 billion, as the product's 12-month revenue dropped 11 percent to $4.4 billion, while sales of Symbicort in the fourth quarter rose 13 percent to $839 million, and revenue increased for the year by 15 percent to $3.1 billion compared to 2010.
Arimidex fell 40 percent to $166 million, as US sales of the drug plummeted 77 percent to $5 million following the approval of generics at the end of June 2009. For the year, sales fell 50 percent to $756 million. For the full year, AstraZeneca recorded a net profit of $10 billion, up from $8.1 billion in 2010, on revenue that increased by 1 percent to $33.6 billion due to the favourable impact of exchange rate movements.
Looking forward, the company noted that it expects revenue in 2012 on a constant currency basis to decline "in the low double-digit range," citing government interventions on pricing, and generic competition, including the anticipated loss of global market exclusivity for Seroquel and Atacand, as well as for Crestor in Canada. Earnings are forecast to be in the range of $6.00 to $6.30 per share. AstraZeneca also said that it will buy back $4.5 billion worth of shares during the year, after purchasing around $5.6 billion in 2011.
The company also reaffirmed that annual revenue will be in the range of $28 billion to $34 billion over the period to 2014, although it is likely "to be the lower half of the range." The drugmaker added that growth in emerging markets is expected to continue in the double-digits. However, AstraZeneca said that based on the latest assessment of its pipeline, including the recent setback in the US for dapagliflozin, which is partnered with Bristol-Myers Squibb, revenue from recently launched and new products is predicted to be between $2 billion and $4 billion. The company had earlier estimated that these drugs would generate between $3 billion and $5 billion in sales.
Cenkos Securities analyst Navid Malik noted that "the buyback will appease the investors who are looking for signs of growth but it won’t solve the problem." Navid added that "they need to drive innovation in their pipeline to generate revenue." Meanwhile, Oriel Securities analyst Justin Smith said that both the share buyback scheme and job cuts were larger than expected. While the company lowered its forecast for drug revenue, its profit estimate remains unchanged, which "shows good cost execution," he remarked. "By the time we get to 2014 they’ll have taken $6 billion out of the cost base," Smith said, adding that "we all know they have a weak pipeline, but they’re doing what they can to cut costs and return money to shareholders."
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