AstraZeneca Tightens Its Belt

The company continues its program to improve productivity and efficiency.
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Continuing on the path followed by many Big Pharma peers,

AstraZeneca

(AZN) - Get Report

is planning to dismiss approximately 3,000 workers over the next three years.

The job cuts represent about 4.6% of the worldwide work force of 65,000. The plan isn't as dramatic as

Pfizer's

(PFE) - Get Report

recent decision to slash 10% of its workers by the end of next year, but it does put AstraZeneca in the company of others, such as

Merck

(MRK) - Get Report

and

Eli Lilly

(LLY) - Get Report

, who are reducing payroll.

Although AstraZeneca "will do everything we can to provide proper support and benefits," the job cuts are "another step in our ongoing program to improve productivity and efficiency," said CEO David Brennan in an address to analysts. The company is making changes "while we're in a position of strength," he said.

Brennan's comments came as AstraZeneca issued fourth-quarter results that narrowly beat Wall Street's estimates but handily exceeded the performance for the year-ago quarter. AstraZeneca earned $1.45 billion, or 93 cents a share, on revenue of $7.15 billion in the most recent quarter. A year earlier, it earned $1.23 billion, or 77 cents a share, on revenue of $6.29 billion.

Analysts polled by Thomson First Call were counting on a profit of 92 cents a share and revenue of $6.85 billion.

AstraZeneca's earnings guidance for 2007 includes a wide range -- $3.80 to $4.05 -- and a lot of uncertainty. It also excludes one-time items due to restructuring, which will lead to $500 million in charges over the next few years.

The key guidance issue is when generic versions of the blood pressure drug Toprol XL will start seriously damaging the brand-name medication in the U.S.

The 2007 prospects for Toprol XL are so unpredictable that AstraZeneca gave analysts 2006 data with and without the drug. For example, fourth-quarter earnings per share would have been 83 cents without Toprol XL in the U.S., while full-year earnings would have been $3.36 instead of a reported $3.86 a share.

During the fourth quarter, worldwide Toprol XL sales dropped 16% to $387 million when measured in constant exchange rates. For the year, sales rose 3% to $1.8 billion.

Another source of uncertainty is Symbicort, the asthma drug with fourth-quarter sales of $323 million and full-year sales of $1.18 billion. All of that activity has taken place outside the U.S.

Although the Food and Drug Administration approved Symbicort last July, AstraZeneca won't sell it until mid-2007.

Then there's AGI-1067, a drug that reduces plaque in arteries, being developed by AstraZeneca's partner

AtheroGenics

(AGIX)

. Results of a

pivotal late-stage clinical trial are due by the end of March.

Although AGI-1067 wouldn't reach the market this year even if the results were successful, a strong showing would boost the morale and profit potential for AstraZeneca, which has endured a string of high-profile, high-cost failures of experimental treatments for diabetes, stroke prevention and blood-clot prevention.

Despite its setbacks, AstraZeneca continues its dealmaking. Last year, it made 12 "significant business development transactions," including three acquisitions and nine research collaborations, said John Patterson, executive director of business development. "There is still more to do," he said.

The company is off to a nice start this year, signing an agreement with

Bristol-Myers Squibb

(BMY) - Get Report

in mid-January to help the New York drugmaker develop and market

a pair of diabetes drugs. By midyear, Patterson said its partner will release the results of a late-stage clinical trial for one drug and a mid-stage test for the other.

AstraZeneca said this week that it will acquire Arrow Therapeutics, a private British company developing antiviral drugs. It also signed an agreement with

Palatin Technologies

(PTN) - Get Report

to work on compounds that could lead to drugs for obesity and diabetes.

Patterson says his company has to make moves like these to get out of R&D areas that don't hold promise, including some disease categories that had been strong sources of revenue in the past. AstraZeneca is ending work on hypertension, gastrointestinal problems, Parkinson's disease, multiple sclerosis and insomnia. Many big drugmakers have been narrowing their R&D to focus to areas that they believe will combine addressing unmet needs with achieving realistic payoffs.

Until its R&D efforts bear fruit, AstraZeneca is relying on its big sellers. The company has 11 drugs with $1 billion or more in sales, and most are growing at double-digit rates.

The biggest products include the ulcer and heartburn treatment, Nexium, whose full-year sales rose 12% to $5.18 billion. The cholesterol fighter Crestor saw its sales jump 60% to $2.03 billion last year, and the schizophrenia medication Seroquel had a 24% increase in revenue to $3.42 billion. Sales for the breast cancer drug Arimidex were up 28% to $1.51 billion.