As profits drop, AstraZeneca trims costs and sharpens focus on R&D
- AstraZeneca on Friday said core operating profits fell by 12% in the first quarter, as the British drug giant continued to invest heavily in research and development. Revenue rose by 1% to $6.2 billion.
- Chief executive officer Pascal Soriot has set an ambitious revenue target of $45 billion by 2023 but declining revenue across several older drugs will be a tough challenge to meet. Soriot said AstraZeneca would cut costs by a little over $1 billion and focus on growth in specialty drugs, particularly in oncology.
- Drug revenues were boosted by stronger sales in the U.S. and China. But AstraZeneca saw sales fall 9% in Europe and other emerging markets.
AstraZeneca said it would prioritize investment in oncology and more narrowly focus on its core therapeutics areas as it builds a pipeline of new products to re-energize its business.
"We are further sharpening our strategic focus on our main therapy areas, intensifying our efforts in oncology," said Soriot. "We are also driving greater efficiency across the organization to support the advancement of our strategy."
These efforts are expected to generate $1.1 billion in annual savings by 2017, with cuts mainly hitting commercial and manufacturing operations. Core selling and administration expenses will see a "material decline," the company said.
Several older AstraZeneca drugs felt the effects of greater competition, with slowing sales crimping overall revenue growth. Revenue from the respiratory drug Symbicort fell by 11% while sales of Nexium dropped by 28% due to the presence of generic copies in the U.S. and Europe.
AstraZeneca's mainstay cholesterol drug Crestor will also be hit be generic competition in the U.S. beginning in May.
For 2016, the company expects a low to mid single-digit percentage decline in overall revenue.
But AstraZeneca is busy investing in new R&D, increasing spending in this area by 12% compared to a year ago. Part of this increase reflects bringing onboard R&D budgets of ZS Pharma and Acerta Pharma. AstraZeneca acquired both companies within the past year, gaining access to a promising hyperkalemia drug and a cancer treatment.
The immuno-onocology drug durvalumab continues to be a cornerstone development drug for AstraZeneca, and the company is testing the drug as both a monotherapy and combination treatment across a variety of cancers. However, Bristol-Myers and Merck have jumped out to an early lead in immuno-therapies with their successful launches of Opdivo and Keytruda, respectively.
In a statement on the earnings report, Soriot sounded an optimistic note on AstraZeneca's overall pipeline, saying he expected a higher rate of regulatory decisions and clinical trial data in the near future.
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