Why does a company doing so well on paper need to get rid of 12 percent of its workforce?
In part it's to do with the imminent loss of the Crestor cholesterol pill patent, and the expected loss of market exclusivity for cancer drug Arimidex and asthma product Pulmicort Respules.
But, also, it's to do with AZ's self-inflicted damage regarding the antipsychotic Seroquel. The company has been accused in thousands of lawsuits of not warning patients that the drug causes weight gain and diabetes. AZ said today it had "higher legal expenses" in the quarter. For the year, AZ has burned $656 million on lawyers, much of it fighting 10,399 cases served in state and federal courts. The company has settled or* had dismissed 2,664 cases.
AZ has previously said its insurers may refuse to pay its legal expenses, leading to a legal battle the company might lose. Today, AZ adjusted its characterization of that to sound a little more bullish:
... it is more likely than not that the vast majority of costs incurred to date in excess of $39 million [a deductible] will ultimately be recovered through this insurance, although there can be no assurance of additional coverage under the policies, or that the insurance receivable we have recognised will be realisable in full.Good news? Er ... even if AZ persuades its insurers to pay up, they won't cover the entire bill, AZ said:
... legal defence costs for the Seroquel claims, before damages, if any, are likely to exceed the total stated upper limits of the applicable insurance policies.To give you an idea of how expensive that is -- and why AZ now needs to get rid of employees to pay for it -- those expenses are the equivalent of not having three of its cancer drugs on the books (Iressa, Faslodex and Nolvadex).
And finally: Note that AZ is refreshingly forthcoming about its bad news. If only all drug companies had transparency cojones like that.
*None of the cases settled. Apologies for the error.
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- AZ Promoted Seroquel as Superior to Haldol When Company Data Said It Wasn't
- AZ's Seroquel Legal Bill Is $1.1B and Getting Bigger