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Sunday, October 12, 2008


Big Pharma Companies Cut Research Expenditures

I read an article published on by Ben Hirschler and Lewis Krauskopf, and like to share...

LONDON/NEW YORK (Reuters) - Faced with sickly investment returns, the world's top drugmakers are taking the knife to research and development.

GlaxoSmithKline disclosed plans on Tuesday to cut up to 850 jobs in research and development, on top of 350 such cuts announced by the drug maker in June, while Pfizer Inc revealed its decision to drop efforts to develop medicines for heart disease, obesity and bone health.

The moves promise to be the latest examples of a trend towards rethinking leaner R&D operations that analysts expect to gather pace on both sides of the Atlantic.

"There is a feeling that bigger is not better and you have to concentrate your innovation. Trying to do everything doesn't seem to have worked," said Ben Yeoh, an industry analyst at Dresdner Kleinwort. "A lot of companies are thinking along these lines."

The pharmaceutical industry is exploring ways to improve productivity because many companies have brought few successful medicines to market, despite spending billions of dollars a year on research and development.

Drug companies initially focussed on sales, marketing and manufacturing, but are now turning to research to generate savings.

"What the industry now is focussed on is reallocation of scarce resources in R&D," said Deutsche Bank AG analyst Barbara Ryan. "They have to behave like portfolio managers and identify the best opportunities for a finite pool of capital."

Some companies have already made strategic decisions.

AstraZeneca spun off much of its research on medicines for gastrointestinal diseases into a new company called Albireo, backed by private equity, in February.

Others moved even earlier. Sanofi-Aventis SA, for example, spun off bone health research into what is now ProStrakan Group, while Roche Holding SA's move out of antibiotics led to the creation of Basilea Pharmaceutica AG.

In 2005, Merck & Co Inc announced it would focus research and development efforts on nine therapeutic areas.

Other companies are increasingly farming out research and development. Eli Lilly and Co unveiled a 10-year, $1.6 billion (900 million pound) lab services deal in August with testing company Covance Inc.

The shake-up at Pfizer, however, may make bigger waves -- partly because it is the world's biggest drugmaker, but also due to its decision to exit heart medicine, a traditional mainstay of the industry.

Pfizer, in particular, is heavily reliant on sales of Lipitor, the world's top-selling $12 billion-a-year drug for lowering cholesterol. But Lipitor revenues are set to fall off dramatically in 2011 when generic versions hit the market.

And following the high-profile failure of torcetrapib, another cholesterol treatment, Pfizer has been unable to come up with a replacement.

Ryan said cardiovascular research is increasingly expensive and it may be difficult to improve on the effective heart drugs already on the market.

Cardiovascular products also have faced a tougher regulatory road in recent years, said Morningstar analyst Damien Conover.

"R&D is no longer the sacred cow it was in the past," Goldman Sachs analyst John Murphy wrote in a research note earlier this month.

"The current R&D model is not delivering. Ten years ago that would have been a staggering suggestion to make; today it is one generally accepted by companies and investors alike."

Glaxo, whose cuts amount to around 6 percent of the company's overall R&D work force, reflects a tough approach by new Chief Executive Andrew Witty, who has pledged to make the drug maker a lower-cost company as part of his strategy to improve returns to investors.

Morningstar's Conover said Glaxo appears poised to do more partnering with their research, including more outsourcing.

"Because they're going to do more of that they're not going to need their internal research organisation as much," Conover said.

"This is largely being spurred by the fact that the productivity of these large pharmaceutical companies just hasn't been that good. And if they can outsource some of their development efforts to increase their productivity, they're going to do it."

(Editing by Andre Grenon)

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