AstraZeneca PLC to Cut Jobs in $1.5 Billion Cost-Cutting Move, Will Double Down on Cancer

AstraZeneca PLC to Cut Jobs in $1.5 Billion Cost-Cutting Move, Will Double Down on Cancer April 29, 2016
By Mark Terry, Breaking News Staff

AstraZeneca , headquartered in London, released its first-quarter earnings today, with particular focus on a $1.1 billion cost-cutting strategy.

AstraZeneca reported an overall total revenue growth of 5 percent, bringing in about $6.115 billion, with Core R&D increasing 15 percent to $1.420 billion, and Core SG&A dropping to $2.127 billion. Core Earnings Per Share (EPS) is 0.95, dropping 7 percent. However, currency impacts shifted things around, with total revenue growth actually being 1 percent, and core operating profit dropping 12 percent as a result.

“We delivered a first-quarter performance in line with expectations, with the growth in Total Revenue underpinned by the performance of the Growth Platforms,” said Pascal Soriot, AstraZeneca’s chief executive officer, in a statement. “I was particularly pleased with the results in China, where we continued to deliver double-digit sales growth, and with the progress of our New Oncology launches.”

However, the company’s drug for ulcers, Nexium, dropped 24 percent in the quarter to $463 million, largely due to generic competition in the U.S. and Europe. Symbicort, the company’s drug for COPD, dropped 7 percent to $749 million as the results of pricing pressures.

What most analysts are keying in on, aside from the EPS drop, are the company’s Crestor sales, which dropped 2 percent to $1.16 million. Crest is a popular statin, used to treat high cholesterol and triglyceride levels. The percentage of the drop isn’t the issue as much as the fact its patent is expiring and sales are expected to continue dropping as the market gets flooded with generic versions of the drug. Crestor will face generic competition in the U.S. starting next week.

As a result of sagging earnings and facing stiffer competition, Soriot is planning on a restructuring plan that will provide a net annualized savings of $1.1 billion by the end of 2017, but will involve a $1.5 billion one-off restructuring charge. Total restructuring charges through the end of 2017 will be $2.4 billion.

There will be job cuts, although the company has not provided any detailed figures, although it indicated that most of them would be outside Britain.

Richard Parkes, an analyst with Deutsche Bank , told Reuters, that the restructuring plan “should help investors become more comfortable over AstraZeneca’s ability to bridge the upcoming Crestor patent cliff.”

Soriot also plans to streamline the company’s sales and manufacturing operations. These are expected to save $1.1 billion annually.

Another focus is on the company’s pipeline, particularly in oncology. “When you have all these great opportunities you have to then support them,” Soriot told reports in a press conference. “This is where the investment is going—it is more clinical trials, essentially, and launch preparation.”

The company’s drug for lung cancer, Tagrisso, was recently approved in Europe and Japan and is headed toward peak sales of $3 billion. Another cancer drug, Lynparza, for advanced ovarian cancer, has launched in 24 countries.

Other regulatory approvals have included Bevespi Aerosphere for COPD in the U.S., Zurampic for gout in Europe. The company’s durvalumab for bladder cancer has been given Breakthrough Therapy status by the U.S. Food and Drug Administration. Its acalabrutinib for blood cancers was given Orphan Drug status in Europe, and its MEDI-551 for neuromyelitis optica was given Orphan Drug status in the U.S. Its vaccine for hospitalized influenza A has been given Fast Track status in the U.S.

AstraZeneca’s emphasis on cancer was underlined by its acquisitions in 2015 of Acerta and ZS Pharma. “Putting additional investment behind our oncology portfolio has the potential to be transformational for the company,” Soriot said in a statement. “A growing proportion is also in specialty care. Our strategy is to follow the science and the products we discover. Our pipeline has shifted and while I believe primary care will remain an important dimension of healthcare in the future, you will see in our numbers and in our pipeline a shift.”

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