AstraZeneca to 'reshape' manufacturing as part of $1.5B cost-cutting effort

As AstraZeneca’s leadership gets ready to set out on a $1.5 billion cost-cutting effort, the London pharma’s manufacturing operations are in the crosshairs.

Company executives introduced a plan on Friday to save $1.1 billion annually as the company’s top drug, Crestor, loses patent protection, making vulnerable about $5 billion in annual sales. In response, AstraZeneca ($AZN) has charted a restructuring that will cost it about $1.5 billion once--mostly cash--and includes a move to “reshape our manufacturing base,” CFO Marc Dunoyer told investors.

AstraZeneca CEO Pascal Soriot explained on Friday’s investor call that the effort will “streamline the operations, primarily in commercial and manufacturing,” in order to “deliver a material decline in our core SG&A cost in 2016 and 2017.” Dunoyer added that AstraZeneca will strive to “make far greater use of shared services” while “optimizing our presence in key strategic sites.”

The news comes following AstraZeneca’s announcements toward the end of 2014 that it would shutter two plants, one each in the U.S. and U.K. In December 2014, it said by the end of 2015 it would close a plant in Westborough, MA, and by 2016 or 2017, it would shutter an API site in Bristol, U.K., following patent losses. The Bristol plant makes the API for Crestor and a couple of other drugs, while the U.S. plant manufactured AstraZeneca's respiratory drug Pulmicort Respules, which is slated to go off patent in 2018. 

However, the company has also showed an eagerness to bulk up in biologics manufacturing, with Dunoyer saying on Friday that the new cost drive will take “into account the need to create capacity in our biologics supply chain.”

His sentiment follows several previous moves by AstraZeneca in that direction. Back in 2014, the company said it would invest $200 million in a biologics plant in Frederick, MD, bolstering capacity and adding about 300 jobs when the work is complete in 2017. Then last May, AZ said it would build a $285 million biologics plant in Sweden that should be ready by 2018 to grow new launch capacity. In September it bought a biologics plant in Colorado from Amgen ($AMGN) following that company’s layoff drive.

Though some details remain unclear on just which jobs and operations will be impacted with this restructuring, AstraZeneca is far from alone in seeing the need to shake things up following a major patent loss. Big Pharma peers such as Sanofi ($SNY), Novartis ($NVS), Merck ($MRK), GlaxoSmithKline ($GSK) and others have all had to rely on the tactic in recent years following trips off the patent cliff.

Sanofi, for one, is in the process of a $1.6 billion cost-cutting drive that may affect manufacturing and vaccines. The company set forth earlier this year with plans to chop 500 jobs in France, according to reports. Before that, back in 2014, Teva ($TEVA) said it would shed half its plants over 5 years to cut costs and increase efficiency. Last August, after having cut more than 36,000 jobs in the previous 5 years, Merck said about 2,585 remained by the end of 2016, mostly in manufacturing.

- here’s the AstraZeneca call transcript from Seeking Alpha

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