U.S. price pressures still batter Oslo companyShareholders in Norwegian contrast developer Nycomed were heartenedlast month by the Oslo company's announcement of its Focus '98program to reduce costs and improve profitability. Nycomed hopesthat
Shareholders in Norwegian contrast developer Nycomed were heartenedlast month by the Oslo company's announcement of its Focus '98program to reduce costs and improve profitability. Nycomed hopesthat the program will help it cope with intense price pressurein the U.S., which has hindered the company's profitability.
Nycomed announced in August that it was planning to restructureits operations after the company experienced declines in bothrevenues and earnings in its second quarter (SCAN 8/28/96). Nycomedattributed most of the decline to U.S. price pressure broughton by intense competition and product discounting.
Nycomed's Focus '98 program is designed to put the companyback on track toward revenue and profit growth by saving 600 millionNorwegian kroner ($94.1 million) before taxes by 1998. Some 50%to 70% of the savings will realized in fiscal 1997.
Nycomed will achieve the savings through several areas:
** cutting R&D costs by $28.2 million;
** cutting production costs by between $23.5 million and $26.7million;
** reducing sales and marketing expenses by between $17.2 millionand $22 million;
** reducing costs in U.S. operations by between $9.4 millionand $12.5 million; and
** slashing administrative services by between $6.3 millionand $9.4 million.
Nycomed estimated that its work force will be reduced by 600to 700 employees as a result of Focus '98's implementation. Thecompany will also take a one-time charge of about $110 millionin the fourth quarter of 1996 for costs associated with the program.
In addition to announcing Focus '98, Nycomed also releasedits financial results for the third quarter of 1996. The companyreported that U.S. price pressures again hurt sales in the period,with revenues from x-ray contrast agents down in North Americawhile sales increased 11% in Europe and other markets.
"Sales of x-ray contrast agents in the American marketshow a substantial decline compared with 1995," the companysaid. "Sales volumes remain steady, but prices have fallenconsiderably."
For the quarter, the company's Nycomed Imaging business hadoperating revenues of $165 million, down 16% compared with salesof $195.4 million in the same period of 1995. The division's operatingprofit before R&D costs was $60.1 million, compared with $89.4million.
Nycomed investors looked beyond the bleak revenue and earningsnumbers, however, and bid up Nycomed shares on the Oslo stockexchange in positive reaction to the Focus '98 plan.