Abbott Laboratories said Wednesday it would eliminate 1,900 employees to keep profits up, indicating that one of the pharmaceutical industry’s few success stories of recent years is not immune to cost pressures squeezing the sector.
The maker of drugs and devices said the terminations involve U.S. marketing and manufacturing positions. The cuts, which represent about 2 percent of the company’s work force, are expected to save the company $200 annually million in coming years. Abbott blamed the cuts on new fees and pricing pressures associated with the health reform law and a “challenging regulatory environment” at the Food and Drug Administration, which approves new drugs.
“I think the characterization of the tougher economy, pressure on utilization, pressure on budgets, pressure on pricing, pressure on access or the regulatory systems — I think all of those things continue. I would not forecast they get better,” said Chief Financial Officer Tom Freyman, on a call with analysts.
Abbott has steadily increased its revenue year after year, even as most of its pharmaceutical peers have watched sales fall as patents on blockbuster drugs expire. And while the company’s multibillion dollar, anti-inflammatory drug Humira continued to deliver in the latest quarter, Abbott has stumbled in efforts to develop new therapies.
Last week the company halted research on a next-generation psoriasis drug after the FDA indicated additional clinical trials would be needed to win approval.
The company has also wrestled with high profile safety problems in the past year. It pulled its diet drug Meridia from the market in October because of heart risks, only one month after it recalled millions of containers of its best-selling Similac baby formula because of possible contamination from insect parts.
Abbott shares fell 90 cents to $47.06 in afternoon trading while the broader markets edged higher.
Despite these and other challenges, the company continued to deliver double-digit earnings and profit growth in the fourth quarter, meeting Wall Street’s expectations.
Looking ahead to 2011, the company predicted earnings growth between 9 and 11 percent, just below analyst expectations. Abbott expects profit between $4.54 and $4.64 per share in 2011, while analysts expect $4.64 per share.
But Leerink Swann analyst Rick Wise said both those figures may be conservative.
“In 2011, Abbott could begin to realize more fully the benefits of the ongoing Solvay integration with potentially even more operating synergies than currently reflected in Street estimates and guidance,” Wise stated in an investment note.
Abbott, based in North Chicago, Ill., earned $1.4 billion, or 92 cents per share, in the fourth quarter, down from $1.54 billion, or 98 cents per share, a year earlier. Excluding costs related to the acquisition of Solvay Pharmaceuticals and Piramel Healthcare Solutions, along with a partnership, Abbott said it earned $1.30 per share. Revenue rose 13 percent to $9.97 billion.
Analysts polled by FactSet expected profit of $1.30 per share on $9.87 billion in revenue.
Pharmaceutical sales drove revenue during the quarter, rising 23 percent to $5.94 billion. The company’s rheumatoid arthritis and immune disorder drug Humira led the way with a 15.4 percent boost in sales to $1.88 billion.
Meanwhile, nutritional product sales fell 1 percent to $1.43 billion while diagnostic product sales rose 5 percent to $1.02 billion and vascular product sales rose 14 percent to $822 million.
For the full year, the company earned $4.63 billion, or $2.96 per share, down from $5.75 billion, or $3.69 per share, in 2009. Revenue rose 14 percent to $35.17 billion from $30.77 billion.