AstraZeneca's ($AZN) layoffs announcement yesterday touched off more than its share of hand-wringing. It may be a straw-that-broke-the-camel's-back case; this shedding of 7,300 jobs follows a spate of payroll-cutting news from Novartis ($NVS), Sanofi ($SNY), Teva Pharmaceutical Industries ($TEVA), Takeda Pharmaceutical, and more. And it adds to AstraZeneca's already daunting total of 21,000-plus since 2007.
Still, so many government officials and media outlets have been aflutter about the news that the Association of the British Pharmaceutical Industry felt the need to issue a statement: No, AstraZeneca's job cuts don't signal doom for the U.K. pharma industry. The company's restructuring, ABPI helpfully points out, is global. WBB Securities analyst Steve Brozak went so far as to tell the AP that the industry's situation is "suicidal."
Just take a look at this quarter's pharma earnings for more evidence on that score. The majority of drugmakers are expecting a lackluster year at best, with slight to no sales growth. Some expect revenues to drop. Others predict earnings increases, but only on the back of cost-cutting. AstraZeneca is just one company that announced another round of dividend increases and share buybacks to keep investors interested.
The problems are familiar to anyone who's been following pharma. Patent expirations on the industry's biggest-selling drugs. Pricing pressures from austerity-minded European governments. New Medicare rebates in the U.S. Ever-more-challenging R&D, with higher costs and fewer successes. "It's just an immensely challenging time for big pharmaceutical companies," EvaluatePharma CEO Jonathan de Pass told the BBC. "Their whole business model is under huge strain--the whole research model is under pressure."
Thing is, though, that the industry has been preparing for this ugly scenario for years. Knowing they would lose billions in sales to generic competition, companies have either diversified into related businesses--eye care, consumer health--or broadened their geographic reach, or brought in promising new products, or all of the above. Those who haven't moved into other businesses have focused more tightly on their cores. Most have put more effort into specialty drugs, even meds targeted at very small, genetically selected populations.
Some drugmakers have been more successful than others. Some will no doubt disappoint their stockholders. But others are sloughing their way through this year on their way to upward-facing sales trends. It's deciding which is which that's the real challenge.