AstraZeneca axes 7,300 jobs, warns on profit

LONDON Thu Feb 2, 2012 7:00am EST

A worker leaves the AstraZeneca research facility in Loughborough, March 2, 2010.   REUTERS/Darren Staples

A worker leaves the AstraZeneca research facility in Loughborough, March 2, 2010.

Credit: Reuters/Darren Staples

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LONDON (Reuters) - AstraZeneca is cutting a further 7,300 jobs and expects earnings to fall 14-18 percent this year as patents on key drugs expire and governments in Europe and the United States squeeze prices.

Britain's second-biggest drugmaker said on Thursday the latest phase of cuts, equivalent to 12 percent of the workforce, would deliver an extra $1.6 billion in annual benefits by the end of 2014. It will cost $2.1 billion to implement.

The Anglo-Swedish drugmaker faces loss of exclusivity on many of its top-selling drugs over the next five years and has few obvious replacements in its pipeline.

The antipsychotic medicine Seroquel, its second-biggest drug, will lose exclusivity in the United States in March and also goes off patent in European countries this year. That will contribute to a tough year, with group sales expected to decline by a low double-digit percentage in 2012.

As a result, Chief Executive David Brennan has been shrinking the business. "The further expected losses of market exclusivity make for a challenging 2012 outlook," he said.

The company has already implemented two earlier rounds of cutbacks involving 21,600 job losses since 2007, which has reduced its worldwide headcount to 61,000.

The latest reductions include ending research work at Sodertalje, a major facility in Sweden, as well as cutbacks in global sales, manufacturing and other operations.

The gloomy outlook weighed on the shares, which fell 4.3 percent by 6:30 a.m. ET, underperforming a little changed European drugs sector.

The lack of replacements for products like Seroquel and heartburn treatment Nexium, as well as top-selling heart drug Crestor which goes off patent in 2016, has triggered speculation AstraZeneca may need to make a big acquisition.

Following the poorly received purchase of MedImmune for $15.6 billion in 2007, it has so far eschewed another large deal and Brennan said his focus remained on small acquisitions.

He told reporters MedImmune was a different scale of deal to ones AstraZeneca might consider now because it had been needed to vault the group into biotech medicine. "The kinds of things we are thinking about are smaller than that," he said.

LESS FROM NEW DRUGS

Doubts about AstraZeneca's future have grown since a double blow to its new drug pipeline in December when it scrapped an ovarian cancer drug and took a big writedown on an experimental antidepressant being developed with Targacept.

Its existing cardiovascular business is also uncertain, with new drug Brilinta off to a slow start and cholesterol fighter Crestor facing more competition following the arrival of cheap generic copies of Pfizer's market-leading Lipitor.

AstraZeneca now expects recently launched products and the pipeline to contribute $2-4 billion to sales by 2014, down from $3-5 billion estimated a year ago and $4-6 billion seen in 2010.

It now expects overall revenues in the period up to 2014 to be in the lower half of the previously forecast range of $28 billion to $34 billion a year. Sales were $33.6 billion in 2011.

"The long-term guidance has serially been overly optimistic," said Sanford Bernstein analyst Tim Anderson.

Despite the challenges, AstraZeneca is committed to returning cash to shareholders and plans to buy back $4.5 billion in shares in 2012, more than analysts had expected. The 2011 dividend was raised by 10 percent to $2.80 a share.

Core earnings this year, which exclude some items, are forecast by the company to be $6.00-$6.30 per share, down from $7.28 in 2011.

In the fourth quarter of 2011, earnings rose 16 percent to $1.61 per share -- broadly in line with analyst expectations of around $1.60 -- on flat sales of $8.66 billion. Profit was buoyed last year by an unusually low tax rate.

Analysts, on average, had forecast sales in the quarter of $8.55 billion, according to Thomson Reuters I/B/E/S.

Drug stocks have outperformed the broader market in recent months, with investors attracted by their healthy dividend yields, but growth is elusive for many of the big firms.

Pfizer, the world's biggest drugmaker, reported a sharp fall in quarterly earnings two days ago and trimmed its 2012 forecasts, while European rival Novartis also said it expected lower profitability this year.

(Editing by Mike Nesbit and Jon Loades-Carter)

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