Biotech Values

[DewDiligence]

Pfizer to Lay Off 5-8% of R&D Staff

[The layoffs will occur in CT, MO, CA, and England.]

http://online.wsj.com/article/SB123186230445977567.html

›JANUARY 13, 2009, 12:01 P.M. ET
By JONATHAN D. ROCKOFF

Pfizer Inc. will lay off as many as 800 researchers Tuesday in a tacit admission that its laboratories have failed to live up to the tens of billions of dollars it has poured into them in recent years.

The world's largest pharmaceutical company by sales began Tuesday telling scores of scientists and technicians that it is eliminating their jobs, according to a person familiar with the matter. By year end, the New York drug maker expects to have laid off 5% to 8% of its 10,000 research employees, according to Martin Mackay, who heads Pfizer's research and development.

The pharmaceutical industry faces pressure from investors to slash its spending because drugs with an estimated $30 billion in sales will lose patent protection and start facing competition from cheaper generics over the next several years. The recession may trigger even bigger cuts, analysts say, if cash-strapped consumers start filling fewer prescriptions or turning more to generics.

Pfizer is at a strategic crossroads as it braces for the 2011 expiration of its patent on cholesterol fighter Lipitor, the world's top selling drug. Lipitor accounts for a quarter of Pfizer's roughly $48 billion in annual revenue [and an even higher proportion of profits].

Investors have been losing patience with the incremental measures announced by Pfizer Chief Executive Jeffrey Kindler since he took the company's helm in July 2006. Some have been clamoring for a big acquisition to offset the pending loss of Lipitor revenue.

While the 800 job cuts will only dent Pfizer's overall work force of 83,400, they strike at the company's lifeblood: The labs charged with discovering lucrative new drugs. At $7.5 billion, Pfizer has the biggest research-and-development budget of any drug maker. But it has run into problems.

In the past two years, Pfizer has dropped the insulin spray Exubera after spending $2.8 billion on it and scrapped a once-promising Lipitor successor drug because it was linked to too many deaths in clinical trials.

For years, big drug makers considered their R&D operations sacrosanct and focused their cutbacks on other departments, such as sales and manufacturing. But that is changing as industry executives conclude that in-house research isn't yielding enough drugs to justify its high costs.

Now, pharmaceutical companies think they can trim their research costs while still bringing the same, if not more, new drugs to market, either by buying the rights to promising molecules from smaller biotechnology companies or by purchasing those companies outright.

"R&D is still the heart and soul of a pharmaceutical company, but it doesn't always have to express itself as a company's own R&D, and that's what I'm seeing more and more," says David Canter, who headed Pfizer's Michigan labs until they shut down last year.

In an interview, Dr. Mackay said the R&D layoffs are part of a continuing reorganization designed to focus Pfizer's research work on treatments with the best chances of reaching the market. As part of this reorganization, Pfizer has abandoned work on new cardiovascular drugs—the research area it was once best known for.

Pfizer closed six labs last year. The coming cuts will take place at labs in Groton, Conn., St. Louis, La Jolla, Calif., and Sandwich, England, Dr. Mackay said.

The cuts will reduce Pfizer's $7.5 billion in yearly spending on research and development, although company officials wouldn't say by how much until the company reports fourth-quarter results on Jan. 28.

Even as it makes those cuts, Dr. Mackay said Pfizer was making progress in shoring up its research pipeline. He said that the number of drugs in Pfizer's pipeline that are in the late stages of human testing jumped to 25 from 16 less than a year earlier.

Pfizer has bought stakes in biotechnology companies like Avant Immunotherapeutics, which is developing a brain cancer vaccine, and is increasing its collaborations with academic researchers, Dr. Mackay said. And it is hiring at new labs developing vaccines, other biologic drugs and treatments using stem cells, he added.‹