AstraZeneca
cuts costs and doubles down on cancer drugs
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[April 29, 2016]
By Ben Hirschler
LONDON (Reuters) - AstraZeneca is to cut
costs by $1 billion and increase its focus on cancer treatments after
underlying earnings, hit by drug patent expiries, fell 12 percent in the
first quarter, broadly in line with analyst expectations.
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Chief Executive Pascal Soriot said on Friday he would sharpen the
prioritization of investments and increase spending in oncology
while cutting commercial and manufacturing operations.
The result would be a "material decline" in spending on commercial
activities this year and next, with net annualized savings of $1.1
billion by the end of 2017. The changes will involve a $1.5 billion
one-off restructuring charge.
There will be job losses, reflecting the fact that specialist cancer
drugs require smaller sales forces than ones sold to general
practitioners. AstraZeneca declined to give numbers but said most of
the job cuts would be outside Britain.
The drugmaker, which saw off a takeover attempt by Pfizer in 2014,
is forecast by analysts to suffer a trough in earnings in 2016 and
2017 as it continues to be hit by loss of exclusivity on key
products.
Its biggest seller, the cholesterol fighter Crestor, will face
generic competition in the all-important U.S. market from next week.
Deutsche Bank analyst Richard Parkes said the detailed cost savings
plan "should help investors become more comfortable over
AstraZeneca's ability to bridge the upcoming Crestor patent cliff".
Soriot is betting on new medicines to revitalize the business,
particularly in cancer, but these will take time to prove
themselves. They also need investment.
"When you have all these great opportunities you have to then
support them," he told reporters. "This is where the investment is
going - it is more clinical trials, essentially, and launch
preparation."
Soriot said there would be increased news about its new medicines in
2016, including a number of regulatory decisions and data readouts,
particularly in oncology.
HIGH BAR FOR M&A
The British group has bought in products to bolster its new drug
line-up, including the recent acquisitions of ZS Pharma and Acerta
Pharma, but Soriot said he was setting a high bar for future deals
as the company's pipeline was now full.
He declined to comment specifically on whether AstraZeneca would
consider getting into a bidding war with Sanofi over U.S. cancer
treatment specialist Medivation.
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To free resources for investment, AstraZeneca has been selling off
rights to non-core drugs and such "externalization" deals helped to
boost revenue by $550 million in the first quarter. AstraZeneca
agreed a further deal this week to sell rights to its new gout drug
for up to $265 million.
Soriot believes he can build a business with annual sales of at
least $45 billion by 2023, up from $24.7 billion in 2015, though
many analysts question this target, which was first set out during
the takeover battle with Pfizer.
He has high hopes in the hot cancer area of immuno-oncology but here
AstraZeneca is competing with several tough rivals, including
Bristol-Myers Squibb, whose drug Opdivo has established strong early
leadership.
First-quarter revenue at the British drug company rose 1 percent in
dollar terms to $6.12 billion, generating core earnings per share,
which exclude certain items, of 95 cents.
Industry analysts had on average forecast quarterly revenue of $5.93
billion and earnings of 94 cents a share, according to Thomson
Reuters.
AstraZeneca reiterated that it expected a low to mid single-digit
percentage decline in both revenue and core earnings at constant
exchange rates for the full year.
(Editing by David Goodman and Susan Thomas)
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