AstraZeneca Seeks a Stronger Pipeline

Its blockbuster drugs are selling well, but their maturing markets and the threat of generics has the pharma giant cutting jobs and boosting R&D

AstraZeneca reported an impressive 17% rise in fourth-quarter profit on Feb. 1. But as some of its blockbuster drugs start to mature, the London-based pharmaceutical company has its work cut out to trim costs and temper the impact of generic competitors on its bottom line.

To do that, AstraZeneca (AZN) said on Feb. 1 that it will eliminate 3,000 jobs, or 4.6% of its workforce, over the next three years. Profit rose to $1.4 billion for the three months ended Dec. 31, from $1.2 billion a year earlier, helped by key drugs like anti-cholesterol medication Crestor. Group sales climbed 14%, to $7.2 billion, from $6.2 billion in the fourth quarter of 2005. Crestor sales, at $625 million, nearly doubled. The company also announced a $4 billion share-buyback program.

Like No.1 drugmaker Pfizer (PFE), which last month said it plans to axe 10% of its employees, AstraZeneca is aiming to shore up its financial position as generic rivals force down prices and claim market share. Its Toprol XL drug for hypertension is facing stiff competition, particularly in the U.S., where sales of the medication declined 20% in the period.

R&D Investment

To strengthen its pipeline, Anglo-Swedish AstraZeneca has made three acquisitions and entered into nine research collaborations since December, 2005. "More remains to be done," Chief Executive David Brennan said in a statement. The company, he added, was determined to "continue to build a pipeline to sustain our growth."

For example, AstraZeneca said on Feb. 1 that it would buy British biotechnology company Arrow Therapeutics for $150 million. Arrow focuses on anti-viral drug therapies. AstraZeneca also said last month it will join forces with Bristol-Myers Squibb (BMY) to develop and market two diabetes compounds discovered by the U.S. drug manufacturer.

AstraZeneca boosted spending on research and development last year by 16%, to $3.9 billion. The company said that strict cost management should allow "significant growth in R&D investment" this year.

Checking the Numbers

AstraZeneca shares rose 2.22%, or 63 pence, to 2,903 pence in London on Feb. 1. The company's ADRs climbed $1.39, or 2.48%, to $57.34 in morning trading on the New York Stock Exchange.

For the full year, profit was $6.06 billion, or $3.86 per share, vs. $4.7 billion, or $2.91 per share, in 2005, a 28.9% gain. Sales increased 11%, to $26.5 billion, from $23.95 billion. The company said it expects earnings per share of $3.80 to $4.05 this year.

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