AstraZeneca's $2.9B Productivity Program Shows Only Modest Results

Last Updated Jul 31, 2009 11:43 AM EDT

AstraZeneca's "Enhancing Productivity" program -- in which it has promised to lay off 15,000 staff -- appears to be a long, slow haul, and the company has far to go. (The Onglyza situation isn't helping, of course.) The company said in its Q2 2009 earnings release:
Good progress continues on the previously announced business reshaping programmes. In the second quarter, $190 million in restructuring costs were charged, bringing the total charges in the first half to $262 million.
That's $262 million in a program that will eventually cost the company $2.9 billion, remember. AZ said it remains "on track" to wring $2.5 billion a year out of its system by 2013. The program was begun in 2007 and enhanced in Q4 2008 by doubling the amount of layoffs from 7,600 to 15,000.

So, is it working? Um, a little bit, but not much.

In this chart which tracks how much in revenue and gross profit AZ earns back for every $1 spent on its biggests quarterly cost, sales and admin, you can see that the company is getting $2.81 for its investment, exactly where it was a year ago.

AZ still struggles to get into the $3 range like Pfizer, Wyeth or any of the other big boys of pharma. And AZ doesn't include distribution costs in either its SG&A or its cost-of-goods lines, so a cynic might argue that the pink line or the blue line should be even lower.

Although the lines appear to be sloping upward a little, average growth in productivity since the "Enhancing Productivity" program begun is just 0.97 percent.

There are three possible conclusions:

  1. The 2-year-old program is in its infancy, early days!
  2. It isn't working.
  3. It is working, in the sense that things would be so much worse without it.
Of course, unless we can get a report from the parallel universe in which AZ kept on all those staff, we'll never know.