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Pfizer cuts set industry precedent

An FT report  has highlighted a possible increase in job losses and reduction in innovation in the pharmaceutical industry after Pfizer announced cost-cutting measures

A report in the Financial Times (FT) has highlighted a possible increase in job losses and reduction in innovation in the pharmaceutical industry after Pfizer announced cost-cutting measures in early January 2007.

FT reporter, Andrew Jack, cited Pfizer's 10 per cent reduction of its total 100,000-strong global workforce and annual gross cost savings of around USD 5 billion (EUR 3.7 billion/ GBP 2.6 billion) by the end of 2008, as a signal that previous mergers have neither benefited the company nor the industry as a whole.

M&A was originally seen as a way for pharmaceutical companies to achieve "critical mass" and boost innovation, says the report. However, increasing pressure from generic drugs and increasing numbers of product launches to replace off-patent medicines are creating greater pressures within the industry to make savings and scale back operations.

According to the FT, manufacturing efficiency is one area highlighted by generic companies, with Pfizer cutting 1,100 jobs in this division, as well as a planned 50 per cent reduction in the number of manufacturing facilities it had in 2003.

Research and development is another business activity singled out for reform, with 2,900 jobs likely to be affected through site closures. Pfizer has said, however, that most jobs will be saved and its overall innovation budget will remain unchanged at approximately USD 7.5 billion (EUR 5.8 billion/ GBP 3.8 billion) a year.

The largest staff cuts at Pfizer will be made in its sales, marketing and administrative sections. Progress in this area is being scrutinised by its competitors, which may copy the strategy, if it is successful.

Jack cites a 2006 survey conducted by strategy consultants, Roland Berger, which suggested that two-thirds of pharmaceutical executives expected the number of sales representatives in Europe to fall significantly over the next two years after rising sharply from 60,000 in 2000 to 100,000 in 2005.

Analysts have suggested that sanofi-aventis, Bristol-Myers Squibb, Eli Lilly and Merck & Co may follow Pfizer's strategy with cuts. However, Novartis and Novo Nordisk have been augmenting their sales forces.

According to Nev Skelton, head of sales force effectiveness at healthcare consultancy, IMS, staff changes will depend on the product mix at each company and was not simply about cutting back but ìright-sizingî sales forces with a lot of re-skilling and redeployment.

Skelton added that the general trend was moving toward smaller, higher-paid, more qualified sales representatives who market speciality drugs, such as cancer treatments, to specialist physicians. Also, each company's profile was different, with Skelton predicting an industry-wide shift from specialist to primary care products by 2012.

While cost cuts may deliver savings in the short-term, it is unclear where long-term innovation will come from, said the FT report.

31st January 2007

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