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Cutting deeper at AstaZeneca
01-28-2010
by Jeffrey Bouley  |  Email the author
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LONDON—So, were the 12,600 job cuts already carried out by AstraZeneca not enough for you? Well, they probably were more than you wanted to hear about, especially with the recent state of the economy, but they aren't enough for AstraZeneca, as it announced on Jan. 28 that it plans to eliminate another 8,000 jobs—some 12 percent of its workforce—across its global operations over the next four years.  
 
As part of this effort, AZ officials said they will do some more restructuring within the company's research and development divisions—part of which involves reducing the workforce in those divisions by 3,500 people and separating researchers into eight groups, each focused on a different disease area. AZ has noted that some R&D sites may close altogether. Staff cuts will also take place across the firm's sales and marketing, business infrastructure, and supply chain operations.  
 
It was in 2007 that AZ initially made noises about big job cutting plans, and then it extended that plan in 2009 to encompass between 9,000 and 15,000 jobs by 2013. This month's announcement not only adds to the body count, but extends the efforts to 2014.  
 
"These initiatives are designed to achieve material efficiency savings in R&D, which will partially mitigate the increase in R&D investment that would be required as projects in the current pipeline progress to the more resource intensive, later phases of development," AZ notes. "By 2014, annual savings of $1 billion should be realized, of which one-half is estimated to be cost savings and the other half cost avoidance."  
 
AZ reported that "good progress has been made" in implementing previously announced restructuring programs. During the period 2007 to 2009, $2.5 billion in restructuring costs have been incurred for those programs, part of that being the elimination of those more than 12,000 positions. "Annualized benefits of $1.6 billion have been realized by the end of 2009," the company notes, "which will grow to around $2.4 billion by the end of 2010."  
 
These announcements and proclamations come as part of AZ's financial report for the fourth quarter and full year 2009, with revenue for the full year having increased by 7 percent at constant exchange rates (CER) to $32.8 billion. Sales of Toprol-XL and Novel Influenza A (H1N1) vaccine in the U.S. accounted for 3 percentage points of the global revenue growth at CER, and emerging markets revenue was up 12 percent at CER, accounting for 13 percent of total company revenue for the full year. Core operating profit for the full year increased by 23 percent at CER to $13.6 billion on revenue growth and operational efficiencies, among other relatively positive announcements.
 
 
"In 2009 we delivered a strong financial performance, exceeding the targets we set at the beginning of the year, says AZ's CEO, David Brennan. "In addition, good progress was made on the pipeline; we now have five products awaiting regulatory approval, and have added four significant late stage development projects through our externalization efforts."  
 
"Our plans for the next five years confirm our commitment to research-based, innovative biopharmaceuticals," he adds. "I believe successful execution of this strategy [of reorganization] will benefit patients and generate the cash flow necessary to provide for the investment needs of the business and shareholder returns."  
 
However, despite all that positive spin, the gains in 2009 were considered weak and are not necessarily immediately sustainable, and Brennan says the company expects "up to a mid single-digit decline" and he adds, "Let's be clear. 2010 is going to be a challenging year."  
 
Part of the reason 2010 is expected to be a tough year is because key products come off patent and AZ will loses some of the unexpected benefits that boosted its 2009 earnings, like the H1N1 flu outbreak.  
 
Simon Lowth, AZ's chief financial officer, declined to comment on whether any of this cutting and reorganization also means the company will spend less on acquisitions. But Brennan did indicate the company would look for strategic external partnerships to meet various goals.
 
 
Code: E01281001

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