November 10, 2010 / 4:03 PM / 8 years ago

AstraZeneca not done with cost cuts

NEW YORK (Reuters) - AstraZeneca Plc (AZN.L), facing patent expirations on its top-selling medicines, sees room for more cost cuts in marketing, sales and other areas to shore up profits, its chief executive said on Wednesday.

David Brennan (R), Chief Executive Officer of AstraZeneca, listens to Michael Milken (L), Chairman of Milken Institute during the "Health Reform I: Prevention and Cures" panel at the 2010 Milken Institute Global Conference in Beverly Hills, California April 26, 2010. REUTERS/Phil McCarten

“You’ll continue to see us reallocate marketing and sales resources,” CEO David Brennan said at the Reuters Health Summit. “There is more to go at.”

Many drugmakers are facing more competition from cut-price generic drugs. AstraZeneca’s patent cliff is particularly steep.

Brennan said he also is looking at ways to improve the company’s supply chain, make drug research more efficient and outsource further head-office functions.

The Anglo-Swedish company’s quarterly earnings until now have beaten expectations, because of cost cuts and delays for some key generic medicines.

But revenue fell in the third quarter, with the U.S. market down 13 percent, and some investors are concerned that AstraZeneca may have cut its operations as much as it can.

Brennan said the process was continuous and that the company could remove more capacity from its commercial operation, given the looming loss of patent protection on drugs like Nexium for heartburn and Seroquel for schizophrenia.

Emerging markets are good for AstraZeneca, as for many drugmakers, and the company also thinks it can grow sales in Japan, where products that are going off patent in the United States and Europe still have plenty of upside.

The goal is to reallocate resources to such growth areas. In many cases this will involve partnering, as exemplified by recent alliances in Japan.

“It’s good to have a partner. We are decreasing our sales force size, not increasing it. I am not quick to say yes when people say they want to hire more people,” Brennan said.

PICKY ON DEALS

Some rivals have turned to substantial acquisitions to plug the hole left by expiring patents, including Sanofi-Aventis SA (SASY.PA), which is trying to buy U.S. biotech group Genzyme Corp GENZ.O for $18.5 billion.

Asked if he would consider a $10 billion to $20 billion deal, Brennan said, “If we saw an opportunity at that level where we could add value, then we would say: ‘OK, is this something we would do?’ But, if you ask me, I’m much more likely to see things at a smaller level than that.”

The focus of acquisitions would be to buy assets that could benefit from AstraZeneca’s marketing, rather than to add research or sales capability.

Separately, Brennan said he was standing by financial targets that the company announced last January, but would revisit those numbers when the company announces its full-year results. AstraZeneca said then that it wants to make annual revenue of $28 billion to $34 billion between 2010 and 2014.

Brennan said the company’s pre-R&D operating margin is running ahead of target.

With net cash of some $1.5 billion on the balance sheet, AstraZeneca will also review its buyback program in early 2011, he said. Investors want another increase next year after $2 billion of buybacks slated for 2010.

Additional reporting by Katie Reid. Editing by Robert MacMillan

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