Company Analysis - Mergers & Acquisitions
Pruning
Companies are currently busy restructuring, none more so than those involved in or planning M&A deals. Major layoffs and closure of whole research areas are being announced. Companies are no longer afraid that this will make investors nervous. Now they are boldly stating their intentions to walk away from areas which they believe simply will not bring in sufficient returns for the time and money invested in them. Perhaps as a side-effect of vast mergers in the past, companies are now taking a hard-line approach to bulging waistlines.
In Feb 2009, GSK decided to shed 6,000 of its 100,000 employees worldwide. It also intends to step down from lobbying governments regarding patent law extension, and refocus on innovative drug discovery and development to strengthen its pipeline. By cutting back, GSK hopes to refocus and streamline into an even more competitive pharmaceutical company. According to Pharmaprojects, GSK has two NCEs developed in-house awaiting registration, and one in Phase III trials. While the early-stage end of the pipeline seems promising, with 13, 30 and 26 in-house NCEs in preclinical, Phase I and Phase II development, respectively, the company needs to focus on successfully developing and launching them. Alongside this, GSK has a small but promising biotech pipeline of 19 vaccines and antibodies, five of which are at Phase III to launched stages.
Sanofi-Aventis is another company similarly shedding sales and marketing to trim the fat while waiting for pipelines to mature. Merck & Co is going one step further, announcing a 12% cut in its workforce by 2011 and the sale of three noncore manufacturing sites. In January 2009, Pfizer announced that its cost-reduction initiative is expected to save approximately US$4.8 billion by the end of 2011. Pfizer intends to reduce its workforce by approximately 10% across the board, while reducing its manufacturing sites and facilities square footage. At the end of 2008, Wyeth also announced streamlining plans, refocusing R&D in six key therapeutic areas and halving target indications. Primary care drugs will no longer be at the forefront, leaving this area to generic suppliers, a move mirrored by many other companies. Wyeth is now set on saving at least US$1 billion in costs over the course of the next few years. The old model of downsizing, with swathes of job and project cuts has been reformulated into a far more co-ordinated and pipeline-focused streamlining process.
In the past, drugs were considered to be hugely successful if they made US$500 million in revenue per year, or more, within 3 to 5 years of launch. This changed significantly with advent of drugs hitting blockbuster status, and doing so within 12-18 months of launch. Such drugs include Lipitor and Viagra. Expectations are now perhaps unrealistically high for profit targets and speed of success; the rapidly upcoming patent expiry crisis facing major pharma companies is another huge pressure. It may turn out that 2009 becomes the year for consolidation, with big companies cherry picking projects and companies to expand and improve pipelines. The current financial turn of events may well have come at the perfect time for big pharma.
Alix Biancardi
Pharmaprojects Analyst
