Cutting deeper at AstaZeneca

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.

Jeffrey Bouley
LONDON—So, were the 12,600 job cuts alreadycarried out by AstraZeneca not enough for you? Well, they probably were morethan 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 itplans to eliminate another 8,000 jobs—some 12 percent of its workforce—acrossits global operations over the next four years.
 
 
As part of this effort, AZ officials said they willdo some more restructuring within the company's research and development divisions—partof which involves reducing the workforce in those divisions by 3,500 people andseparating researchers into eight groups, each focused on a different diseasearea. AZ has noted that some R&D sites may close altogether. Staff cutswill also take place across the firm's sales and marketing, businessinfrastructure, and supply chain operations.
 
 
It was in 2007 that AZ initially made noises aboutbig job cutting plans, and then it extended that plan in 2009 to encompassbetween 9,000 and 15,000 jobs by 2013. This month's announcement not only addsto the body count, but extends the efforts to 2014.
 
 
"These initiatives are designed to achievematerial efficiency savings in R&D, which will partially mitigate the increasein R&D investment that would be required as projects in the currentpipeline progress to the more resource intensive, later phases of development,"AZ notes. "By 2014, annual savings of $1 billion should be realized, of whichone-half is estimated to be cost savings and the other half cost avoidance."
 
 
AZ reported that "good progress has been made" inimplementing previously announced restructuring programs. During the period2007 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. "Annualizedbenefits 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 partof AZ's financial report for the fourth quarter and full year 2009, with revenuefor 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) vaccinein the U.S. accounted for 3 percentage points of the global revenue growth atCER, and emerging markets revenue was up 12 percent at CER, accounting for 13percent of total company revenue for the full year. Core operating profit forthe full year increased by 23 percent at CER to $13.6 billion on revenue growthand operational efficiencies, among other relatively positive announcements. 
 
"In 2009 we delivered a strong financialperformance, exceeding the targets we set at the beginning of the year, says AZ'sCEO, David Brennan. "In addition, good progress was made on the pipeline; wenow have five products awaiting regulatory approval, and have added foursignificant late stage development projects through our externalizationefforts."
 
 
"Our plans for the next five years confirm ourcommitment to research-based, innovative biopharmaceuticals," he adds. "Ibelieve successful execution of this strategy [of reorganization] will benefitpatients and generate the cash flow necessary to provide for the investmentneeds of the business and shareholder returns."
 
 
However, despite all that positive spin, the gainsin 2009 were considered weak and are not necessarily immediately sustainable,and Brennan says the company expects "up to a mid single-digit decline" and headds, "Let's be clear. 2010 is going to be a challenging year."
 
 
Part of the reason 2010 is expected to be a toughyear is because key products come off patent and AZ will loses some of the unexpectedbenefits that boosted its 2009 earnings, like the H1N1 flu outbreak.
 
 
Simon Lowth, AZ's chief financial officer, declinedto comment on whether any of this cutting and reorganization also means thecompany will spend less on acquisitions. But Brennan did indicate the companywould look for strategic external partnerships to meet various goals.
 

Jeffrey Bouley

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