LONDON (Reuters) – AstraZeneca’s new chief executive announced another 2,300 job cuts in sales and administration on Thursday as he set out his stall for turning round the struggling drugmaker and returning it to growth.
The latest cutbacks mean the group will shed around a tenth of its workforce, or 5,050 jobs, by 2016 as expiring drug patents shrink sales and it faces generic competition on several top-selling medicines.
Pascal Soriot said he had no quick fix for the company and ruled out the idea of diversifying away from prescription drugs, as several rivals have done. He plans instead to invest in scientific research to replenish a sparse new drug pipeline.
It promises to be a long haul. Still, AstraZeneca believes it can double the number of drugs in late-stage development by 2016 and by 2018 it expects revenue to “significantly exceed” the current market consensus of $21.5 billion.
Research efforts will in future focus on three main disease areas and AstraZeneca will strike more external deals – following a $240 million tie-up with Moderna Therapeutics – to bring in new products, particularly in specialty medicine.
A key figure in getting deals done will be new hire Marc Dunoyer, who is joining from rival drugmaker GlaxoSmithKline as head of global portfolio and product strategy.
Investors may be reluctant to give Soriot too much credit until they see concrete signs of new drugs nearing the market.
MOUNTAIN TO CLIMB
“It is a serious mountain to climb,” said Navid Malik, an analyst at Cenkos Securities. “It took GlaxoSmithKline 10 years and two patent cliffs before it could finally could say it would grow again this year.”
Nonetheless, Soriot’s upbeat outlook for 2018 sales and his readiness to keep costs under control by shrinking overheads helped lift the shares 2.7 percent by 9.15 a.m. ET.
The former Roche executive laid out his strategic thinking in a meeting for analysts and investors in New York and in a briefing with reporters ahead of the event.
He had already presented a blueprint for overhauling R&D operations on Monday, involving the loss of 1,600 jobs. Another 1,150 posts will go under a program from 2012.
The latest job cuts include a reduction in the sales force in Europe, where austerity measures have hit drug sales hard, and the combined changes will result in one-time costs of $2.3 billion and yield benefits of $800 million a year by 2016.
The company employs 51,700 people worldwide, with major operations in the United States, Britain and Sweden. Analysts said the cutback in the sales force was simply tracking an inevitable decline in revenue.
AstraZeneca shares trade at a discount to other large pharmaceutical companies, with analysts expecting its sales to fall from $28 billion in 2012 as its two top drugs – Nexium for stomach acid and the cholesterol pill Crestor – face the loss of U.S. patent protection in 2014 and 2016.
“We are making an unambiguous commitment to concentrate our efforts and resources on our priority growth platforms and our priority pipeline projects,” Soriot said.
He confirmed plans – first disclosed in an interview with Reuters on Monday – to focus R&D on three key therapy areas: cancer- cardiovascular and metabolism disorders- and respiratory and inflammatory diseases. It will reduce spending on neuroscience and anti-infectives, including antibiotics.
Up to 50 percent of post-tax, pre-research and development (R&D) cashflow from existing products will be reinvested in research, external deals and capital investment – a modest increase on the average of 47 percent over the past decade.
At the same time, Soriot expects to keep underlying margins, before R&D costs, in the range of 48 to 52 percent – compared with a peak of 55 percent in 2012 – and he sought to reassure investors by pledging to maintain a progressive dividend policy.
The group also plans to change long-term incentives for top management to tie bonus payments to both the company’s return to growth and achieving scientific leadership in drug discovery.
The approach taken by Soriot, a vet by training, will involve an increased focus on acquisitions of promising drugs and smaller companies.
Analysts believe AstraZeneca could easily spend $20 billion and there has been speculation of a large deal, such as buying Shire. Soriot, however, favors bolt-on deals and has previously said a major buy is possible but unlikely.
More typical of his style may be Thursday’s alliance with unlisted U.S. biotech firm Moderna, which will involve AstraZeneca paying $240 million upfront to access a selection of early-stage so-called messenger RNA drugs to treat cancer, as well as cardiovascular and metabolic diseases.
(Editing by David Holmes and Helen Massy-Beresford)