AstraZeneca Announces Jobs Cuts and R&D Restructuring

AstraZeneca (London) announced this week that it plans to undertake further restructuring in its research and development (R&D) operations, resulting in the elimination of 3500 jobs. The move is part of a larger effort by the company to refocus its R&D activities to include a reduction in the number of disease targets within its core therapeutic areas, a continued focus on externalization, and a smaller R&D site footprint.

The company hopes to realize annual savings of $1 billion by 2014, with half of that amount realized through cost savings and the other half through cost avoidance. The company’s preliminarily estimates that 3500 positions will be eliminated, but after taking into account relocation of some positions and the investment of other skills and capabilities in biologics, the net reduction of jobs would be approximately 1800.

AstraZeneca estimates restructuring costs of $1 billion, of which approximately 60% will be in cash costs. The recent jobs-reduction announcement follows further restructuring in the company from 2007 to 2009, which involved the reduction of 12,600 positions and restructuring costs of $2.5 billion. The company realized annualized cost benefits of $1.6 billion by the end of 2009 from that restructuring plan and expects the annual savings from that restructuring to increase to approximately $2.4 billion by 2010.

In the next phase of restructuring, which includes the completion of the previous restructuring programs, additional initiatives in supply chain and sales, general, and administrative functions, and the newly announced R&D restructuring, the company hopes to realize an additional $1.9 billion in estimated annual cost-savings by the end of 2014, with half realized by 2011. When fully implemented, these programs will impact 10,400 positions. Additional restructuring charges of $2.0 billion are anticipated between 2010 and 2103, with approximately 60% to be taken in 2010 and most of the remainder in 2011.

AstraZeneca reported 2009 revenues of $32.8 billion, up from 2008 revenues of $31.6 billion. Operating profit increased from $9.1 billion in 2008 to $11.5 billion in 2009. The company expects that revenues in 2010 will be affected by the expected loss of market exclusivity for Arimidex (anastrozole) and Pulmicort Respules (budesonide) in the US. Compared to a 2009 revenue baseline that included unanticipated contributions from US sales of Toprol-XL (metoprolol) and H1N1 pandemic influenza vaccine, the company expects as much as a “mid single-digit decline” in revenue in 2010 on a constant currency basis.

Meanwhile, analysts report that GlaxoSmithKline (GSK, London) is expected to announce restructuring when it releases its financial results later this week. The Financial Times of London reported on Jan. 31, 2010, that the company is expected to announce job cuts of 3000. As of press time, GSK is expected to announce its financial results on Feb. 4, 2010.