It may not be. While AZ is beset by the same problems that all Big Pharma companies have (lucrative brands with market exclusivity suddenly facing a wave of cheap generic competition), AZ had hoped its problems could be ameliorated by the launch of Onglyza, its diabetes drug. Onglyza is chemically similar to, and competes with, Januvia, a blockbuster for Merck (MRK) that made $600 million in revenues in Q3 2010.
Onglyza (marketed jointly with Bristol-Myers Squibb) should have taken a healthy slice of that pie. Instead, it made only a pitiful $19 million in sales in Q3 after being on the market for more than a year. AZ loses money on this drug due to an insane pricing strategy: It sells Onglyza for roughly the same amount as Januvia, giving reimbursers a choice between Januvia's established safety/efficacy record or AZ's newbie. Until AZ offers Onglyza at a discount to Januvia, there's no reason for anyone to switch meds.
You'd think that the Onglyza failure would make drug reps selling that product vulnerable to Brennan's desire for layoffs. But AZ is about to double down on Ong-loser with the launch of an Onglyza-metformin combination drug, Kombiglyze -- which, as it turns out, is also a virtual clone of Merck's own combo pill, Janumet. AZ will need to keep reps on that franchise to launch the new product even though the old product's return on investment demands they be given pink slips or moved elsewhere.
Here's how that is affecting the overall efficiency and productivity of the company:
Source: Company filings.
The chart shows how much revenue AZ earns for every dollar it spends on sales, marketing and administration, the company's biggest quarterly expense. In Q3, AZ got only $2.62 in sales for every buck spent, its lowest return in three years. It used to get as much as $3.48. That volatile, downward sloping line screams for layoffs and cuts, particularly as AZ's revenues were down 4 percent to $7.9 billion in Q3.
That's one reason why the 6,500 workers at AZ's Macclesfield, England, facility will probably have to face the reality that the days of Santa Clause-style defined benefit pension plans are over. Those open-ended costs, absent new products to sell, are killing AZ.
There are few signs of good news in AZ's portfolio of brands. Heartburn remedy Nexium is seeing generic competition in Europe. Cancer drug Arimidex lost 38 percent of its sales in Q3 ($284 million), leaving AZ dependent on its smaller oncology brands. Two areas where reps' jobs are likely to be safe are on asthma product Symbicort and antipsychotic pill Seroquel, which both have growing sales.
Judging by the low morale exhibited on Cafe Pharma, the bulletin board for drug industry gossip, none of this is news.
- You Can Blame Bristol-Myers' Layoffs on Failed Launch of Me-Too Diabetes Drug
- Effient and Onglyza Launches "Sluggish"; Multaq More Hopeful
- AstraZeneca's $2.9B Productivity Program Shows Only Modest Results