Big cuts hit big pharma R&D

AstraZeneca (AZ), GlaxoSmithKline (GSK) and Pfizer have all announced plans to cut their research and development budgets - despite the fact that they have all reported increases in sales and profits.

AZ has said that it plans to cut 8000 jobs over the next four years - with approximately 1800 additional research and development (R&D) staff to be lost. The cuts are in addition to the 15,000 job cuts announced across the company since 2007, of which 12,600 have gone to date. As of April 2009, the company employed around 63,000 people worldwide, 12,000 of which work in R&D. 

’From R&D we anticipate that 3500 positions will be affected by the process, however we are estimating that the net reduction will be approximately 1800 positions after people move within the company,’ Abigail Baron, a spokesperson for AZ, told Chemistry World.  

Nigel Borshell, a senior adviser at consultancy firm PharmaVentures, says the additional job cuts do not come as a surprise. ’Over the next four to five years, products that AZ are selling that account for $7 billion [?4.3 billion] of sales annually will come off of patent,’ he says. And ’their pipeline products don’t really fill the gap’.  

To populate their pipeline, AZ will be continuing to seek more collaboration opportunities with other companies, including forming licensing partnerships and co-developing drugs. 

’We’re looking to strike a balance between internal and external opportunities,’ says Baron.  

According to Borshell, AZ are far from unique in taking this approach. ’Rather than spend money on really early research, companies hold onto their money and try and use it wisely in terms of external deals that will buy in things that will kick the share price up again,’ he explains.  

Focus on the future 

GSK is also following the drive to externalise research and plans to shave ?500 million from its costs by 2012 - with half of the cuts coming from its R&D budget.  

According to Andrew Witty, GSK’s chief executive, one third of the company’s R&D costs are due to fixed infrastructure, which represents ’a huge overhang from the 1980s’ - and this is an area in which the company aims to make significant savings.  

While the firm would not provide targets for job reductions, it has said it is planning to focus its neuroscience research on neurodegeneration and neuroinflammation while dropping projects on depression and pain. 

’From a strategic perspective, GSK is almost sidelining pharmaceutical R&D-based business with Witty saying that at least for a few years they need to invest in areas that can give them a better return, partly through feeding the pipeline by buying products in, but if you look at potential sales through to 2014 it doesn’t send a strong enough message to the market to say "stick with us",’ says Borshell. 

He says that Pfizer is in a similar position to GSK, and that they are both looking to increase their presence in generic and emerging markets like China.  

Following its acquisition of Wyeth in 2009, Pfizer has said it plans to reduce its R&D budget from the $11 billion (?7 billion) that the two companies jointly spent in 2008 to between $8 and $8.5 billion by 2012. 

As Chemistry World  went to press it was still unclear how large a proportion of Pfizer’s proposed cuts could be accounted for by the 20,000 job losses announced with the news of the Wyeth merger. 

According to Andrew Thomas, a Pfizer spokesperson, cuts in infrastructure costs will play a significant part in the savings Pfizer plans to make - with the previously announced streamlining of its R&D facilities reducing its R&D footprint by 35 per cent (see Chemistry World  , December 2009, p20). 

However, he was keen to stress that ’where we have made savings in certain areas we have already reinvested in our "invest to win" areas and this has definitely benefitted our late stage development programmes.’ 

’All these moves are very positive,’ says Borshell. ’The hard decisions don’t help the people losing their jobs, but they do keep the company healthy and protect as many jobs as possible.’ 

Jeffrey Kindler, Pfizer’s chief executive stressed the importance of pharmaceutical R&D to the health of the company but says, ’we have to improve R&D productivity - we have to improve the return on our owner’s capital investment in R&D, but at the same time, we can’t do it in a way that doesn’t feed the innovations that we need to do our core business.’ 

Nina Notman and Matt Wilkinson 

As  Chemistry Worldwent to press, Merck & Co. announced it was cutting 17,500 jobs in a bid to shave $3.5 billion from its cost structure. More details are available online or in next month’s issue.