A look at AZ's Q4 earnings and a recent analyst comment, however, show that the company is deeply distressed:
Every dollar spent on sales reps and marketing yields only $2.68 in revenues, exactly where the company was way back in Q3 2007. (We saw yesterday that such a low yield puts AZ in the bush league of pharma companies -- it's even less productive than Bristol-Myers Squibb.)
What that means is that although AZ has been firing people left and right, the cuts have had no effect. This is in part because of the charges associated with those cuts (severances, etc.). But it's also because AZ has not been disciplined enough to hold down the overall level of its sales costs. The company said:
Core SG&A costs of $2,570 million were 4 percent higher than the fourth quarter of 2007 as a result of continued investment in Emerging Markets and increased marketing investment behind Symbicort and Crestor in the US, partially offset by operational efficiencies.You read that correctly: While it was axing all those people its costs went up 4 percent for non-severance related reasons.
This, in part, explains why the company was cashflow negative for a second year in a row, losing $1.5 billion in 2008 and $1.3 billion in 2007.
ING believes Astra will be the single worst-affected company over the coming years and is forecasting a 40 per cent decline in earnings between 2009 and 2013. It said the group's early-stage pipeline of products is unlikely to be profitable, even if successful, before 2015, and that cuts in infrastructure and research and development may be necessary, which in turn could force the company to license promising R&D candidates to other groups. ING has issued a sell rating and a target price of Â£21.25. AstraZeneca's shares fell 34p to Â£26.89.And we're not even factoring in the Seroquel legal iceberg, yet.
You may have noticed a trend developing here. Of a selection of companies reporting Q4 revenues -- Pfizer, Wyeth, Abbott, J&J, Amgen, and BMS -- none of them have managed to show significant improvements in SG&A productivity even though almost all of them have been on cost-cutting or efficiency drives. (BNET will return to this issue in future items, once the full earnings season is over.)