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Seeking to streamline
November 2013
by Kelsey Kaustinen  |  Email the author
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All businesses are sensitive to the fluctuations of the market, and with their heavy dependence on financings and commercial success, the pharmaceutical, biotech and life- science industries are particularly susceptible. Announcements of job cuts have been common in recent years as firms struggled to weather the economic depression and near-crippling patent cliffs, but now they’re the results of companies seeking to create streamlined, more carefully focused facilities.
 
Among the biggest companies announcing job losses, Merck & Co. is going to be cutting its global workforce by roughly 8,500 positions in pursuit of annual cost savings of nearly $2.5 billion by the end of 2015. Of those cost savings, Merck expects to realize $1 billion by the end of next year, largely from marketing, administrative and R&D expenses. The move is a multiyear initiative the company says will “enable Merck to better target its resources behind those opportunities that have the potential to deliver the greatest return on investment.”
 
The announcement is only the latest in recent cuts by Merck, as the company previously announced that it would be eliminating approximately 7,500 jobs. All told, these cuts will decrease Merck’s global workforce of 81,000 employees by roughly 20 percent by the end of 2015.
 
Other big cuts will be seen at Teva, which announced that it would be eliminating 5,000 jobs as part of the restructuring program announced in 2012. The move is expected to result in annual cost savings of approximately $2 billion by the end of 2017, and comes as Teva braces itself for the expiration of its patent protection on Copaxone, its multiple sclerosis drug. In the wake of the workforce cuts, Teva said it plans to grow its generics business as well as its core R&D programs.
 
Ben Venue Laboratories, a division of Boehringer Ingelheim, will also be closing its Bedford, Ohio facilities, ceasing production by the end of this year and laying off 1,100 employees. While the company has put more than $350 million into updating its manufacturing facilities, it still expects to face cumulative operating losses of roughly $700 million over the next five years if it continues to attempt to meet good manufacturing standards.
 
In some companies, however, this refocusing trend is taking the form of adding jobs. Bristol-Myers Squibb Co., which recently opened a new office in Tampa, has plans to fill 250 positions by the end of 2013. In addition, 200 positions will be relocated to Tampa from one of the company’s Princeton, N.J. offices, with approximately another 325 jobs to come from other offices.
 
Roche is also making plans for additional growth. The pharmaceutical giant has announced that it will be investing $878 million into its manufacturing operations over the course of the next five years, a move that stands to create approximately 500 jobs. The investment is meant to increase the company’s production capabilities for its biologic medicines, and will be spread between facilities in Penzberg, Germany; Basel, Switzerland; and Vacaville and Oceanside, Calif. Roche will also begin construction of an antibody-drug conjugate production facility in Basel with an investment of approximately $213 million, which is expected to results in the creation of 50 jobs. It’s positive news following the company’s decision to close its wholly owned subsidiary 454 Life Sciences and its Applied Science Business section.
 
Contract research organization Pharma Medica Research Inc. will be opening a new facility in St. Charles, Mo., with a $30.8 million capital investment and the creation of 320 jobs. The move represents the company’s first U.S. facility.
 
Venture capitalist John Lyon, who is also a professor of Practice in Entrepreneurship at Warwick Business School, commented in a note that these changes come on the heels of the realization that the era of blockbuster drugs is over, and that the industry “is having to shift its focus.”
 
“Large corporations are very process-driven, but they need to be more flexible and find new innovative ways of working and embed that new thinking into new processes that work,” says Lyon. “They need to be more nimble, so that ownership and responsibility has moved down the organization and they are not as hierarchical. A flexible, dynamic organizational structure is needed to act swiftly to changing market dynamics, along with the ability to address real-time controllable risks through swifter decision-making. But this takes time, and it is an ongoing process that will take many years—it is like turning an oil tanker.”
 
Code: E111302

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