Thursday, July 2, 2015

Deconstructing how AstraZeneca restructuring affects Delaware

The London-based pharmaceutical company does plan to demolish 450,000 square feet of laboratory space as it prepares to cease discovery-stage research in Wilmington.

Deconstructing how AstraZeneca restructuring affects Delaware

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When I’d heard that AstraZeneca P.L.C. was not only cutting jobs in Wilmington, but also tearing down buildings, it sounded like a corporate variation on scorched-earth tactics.

The News Journal broke the news last week that the pharmaceutical company plans to raze 450,000 square feet of laboratory space in three buildings at its Wilmington-area campus over the next two years.

Most companies, when they resort to layoffs, don’t level the buildings, too. It sounded to me to be a little drastic.

AstraZeneca spokesman Tony Jewell walked me through the logic.

The company, which generated $33 billion in net sales in 2010, had made the decision in March 2010 to end research activities in 10 disease areas, including neuroscience. It would effectively end the search for psychiatric drugs that might replace its Seroquel antipsychotic, which generated $5.3 billion in global sales last year.

The strategic shift meant the end of early-stage discovery work being performed at several AstraZeneca locations, including the Wilmington campus. The company’s restructuring plans aimed to cut 10,400 jobs by 2014 from the 63,000-person global workforce at the end of 2009. In Wilmington, about 550 scientists and support staff are to lose jobs by the end of 2011.

No early-discovery research going on means no need for lab space. So why couldn’t the company lease out the space to another company?

Jewell said the company did consider “many, many options,” including repurposing the space for another use, but in the end decided to demolish the buildings.

I can see why leasing out the buildings might have been a challenge. With a total of 2.2 million square feet of space, the Wilmington complex is a fenced-in facility and many of the buildings are connected by pedestrian bridges.

In Lund, Sweden, last year, AstraZeneca closed an 861,000-square-foot laboratory complex where 900 once worked. The company isn’t fleeing Wilmington. It will maintain a number of corporate functions there, including late-stage development, sales and marketing, and headquarters duties.

The 450,000 square feet of space that will be demolished in phases at the complex at Routes 202 and 141 are largely in buildings that are at least 30 years old, Jewell said.

In other words, they are not the newer structures built after Delaware won an incentives-laden battle with Pennsylvania back in 1999 to land the U.S. headquarters for what was then a fast-growing pharmaceutical company built by purple pills - first Prilosec, then Nexium - to treat heartburn. Part of the Delaware Economic Development Office’s lure was a package of grants and tax credits totaling $40.7 million.

Like other large drug companies, AstraZeneca has been scrambling to adjust to the impending loss of sales from its biggest-selling drugs that will lose patent protection. Seroquel loses protection from generic competitors in September. Patents on Nexium, which had 2010 sales of $5 billion, begin to expire in 2014.

Pharmaceutical companies have been shedding sales representatives, cutting research, outsourcing manufacturing, and wheeling and dealing with biotechnology firms to resupply their product offerings. An industry that seemed to grow with wild abandon a decade ago now suffers from shrinking pains.

Once AstraZeneca has finished making its latest cuts, the company will still have 3,500 employees in northern Delaware, including its manufacturing operation in Newark.

“AstraZeneca is committed to a strong presence in Wilmington,” Jewell said. “The campus is and will be home to our U.S. business and many of our global employees.”

Earnings

Tuesday: Carpenter Technology, Delphi Financial Group, Harleysville Group, Hershey, Liberty Property Trust, Quaker Chemical, Sun Bancorp, Teleflex, U.S. Airways Group, United Parcel Service, Universal Health Services.

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About this blog
Mike Armstrong blogs about Philadelphia corporations and business-related topics. Contact him at 215-854-2980. Reach Mike at marmstrong@phillynews.com.

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