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AZN to Restructure Operations

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AstraZeneca PLC’s (AZN) global biologics division, MedImmune, is set to streamline its infectious disease and vaccines research, development and operations. As part of the restructuring, AstraZeneca is closing its California sites at Mountain View and Santa Clara. However, the company will keep its site at Hayward operational.

As a result of the restructuring, AstraZeneca expects that 300 positions will be impacted of which 100 will be shifted to the company’s other sites including Hayward. This operation is expected to be over in 2014.

AstraZeneca believes that the changes will help in innovation across its therapeutics areas and also aid product development. This will also result in reduction of fixed cost associated with the sites. The company reaffirmed its commitment to infectious diseases and vaccines research and development, mentioning that the changes will not affect the supply of vaccines.

Our Take

AstraZeneca is on the back foot due to generic competition faced by its many of its drugs. Arimidex, Toprol-XL, Seroquel IR and Merrem are already facing generic competition in the US. Additionally, Nexium generics are expected in the US in 2014. Generic competition was primarily responsible for the $2 billion loss of revenues in 2011.

Moreover, AstraZeneca’s drugs operate in a highly competitive environment. AstraZeneca’s lead drug, Crestor, primarily competes with Pfizer Inc.’s (PFE) Lipitor and Merck & Co. Inc.’s (MRK) Zocor/Vytorin. Nexium competes with Pfizer’s Protonix. The company is looking to drive the bottom-line through cost-cutting initiatives and share buybacks.

We currently have a Neutral recommendation on AstraZeneca. The stock carries a Zacks #3 Rank (Hold rating) in the short term.

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