Big pharma cuts its R&D budgets

C&I Issue 4, 2010

GlaxoSmithKline (GSK) and AstraZeneca have announced big job cuts and have slashed R&D.

AstraZeneca, which has only five products awaiting regulatory approval, plans to cut a billion dollars out of its R&D budget over the next four years, as it consolidates research in an effort to improve productivity. AstraZeneca ceo David Brennan said he does not expect a rise in sales for five years and, initially, 3500 jobs may be affected.

The job cuts are part of a wider restructuring and costcutting exercise being made in anticipation of challenging times ahead for AstraZeneca, which is due to lose patent protection on key blockbuster drugs over the next few years, says Zulaikha Sesay, a healthcare and pharma analyst at IHS Global Insight.

Meanwhile, despite announcing a 12% rise in profits to £8.73bn for 2009, GSK plans to save a further £500m by 2012, half of which will come out of R&D. Ceo Andrew Witty points out that 2009 profits were boosted by the sale of pandemic H1N1 flu drugs and vaccines, which are not expected to grow in 2010. GSK’s annual £3bn R&D spend in the last decade has failed to deliver a new molecular entity to market. As a result, GSK plans to downsize its research activities in neuroscience, including depression, anxiety and pain – among the most expensive, high risk drugs, according to Witty. However, the company plans to establish a new unit to develop and commercialise drugs for rare diseases. Lower risks and smaller clinical trials mean such drugs have a higher probability of success, Witty says.

‘It is therefore possible that the effects of the job cuts may be compensated for by new research jobs in rare diseases,’ says Sesay. He points out that, in 2009, GSK reallocated resources to a higher growth area by reducing its sales workforce in mature markets, such as the US and Europe, while simultaneously increasing it in emerging markets.

Although it has 30 products in late-stage testing, GSK says it plans to diversify, focusing less on small molecules and more on therapeutic areas with a higher success rate. Sales in GSK’s Emerging Market pharmaceuticals business grew 20% in 2009 and sales in its consumer healthcare business were up 7%, compared with overall market growth of around 2%.

Meanwhile, Pfizer has also announced R&D cuts. It plans to spend up to $9.6bn in 2010, down $1bn on last year.

‘Pharmaceutical companies have traditionally relied on “white pill” western markets to drive growth. However, their revenues are being challenged by looming patent expiries,’ Sesay says. She points out that, in 2009, health care market intelligence provider, IMS Health, forecast global growth in the pharmaceutical industry of 2.5–3.5%, compared with 13–16% in the BRIC economies.

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