Big Pharma Tightens Its Belt in Global Manufacturing - Pharmaceutical Technology

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Big Pharma Tightens Its Belt in Global Manufacturing
In the aftermath of recent restructuring, Big Pharma is sporting a reduced global manufacturing footprint while intensifying its focus to biologics and emerging markets. What will be the look of tomorrow's manufacturing networks?

Pharmaceutical Technology
Volume 33, Issue 8, pp. 32-37

As part of this new cost-reduction measure, Pfizer is reducing its global workforce by approximately 10%. The cuts will span sales, manufacturing, research and development (R&D), and administrative organizations. In the first quarter of 2009, the company reduced its workforce by 1650 employees, which was net of employees hired in expanding areas, primarily in emerging markets. The company also intends to reduce its facilities' square footage by approximately 15%. Pfizer says it expects to incur pretax costs of $6 billion for this new cost-reduction program.

On the horizon...
But more change is in store for Pfizer. At press time, Pfizer expected its merger with Wyeth to close in either the third or fourth quarter of 2009. The company expects to incur acquisition-related restructuring and integration costs of $6–8 billion and achieve annual cost savings of $4 billion by the end of 2012. How these cost savings will be achieved and whether they will be gained through facility rationalization is a critical, but still unanswered question.

Wyeth owns four pharmaceutical manufacturing facilities in the United States (Andover, Massachusetts; Pearl River, New York; Sanford, North Carolina; and Carolina, Puerto Rico), according to the company's 2008 financial report. It also leases two pharmaceutical manufacturing facilities in Rouses Point, New York, and Guayama, Puerto Rico. The manufacturing sites in Andover, Pearl River, Rouses Point, and Sanford also include research operations, and the company also owns three other pharmaceutical research sites in the United States (Cambridge, Massachusetts; Princeton, New Jersey; and Chazy, New York). The company also owns facilities in Charles City and Fort Dodge, Iowa, to support its animal-health business. Its consumer healthcare business is supported by manufacturing and research facilities in Richmond, Virginia, and Albany, Georgia, as well as by the facilities in Pearl River and Guayama. In addition, Wyeth has 16 pharmaceutical manufacturing facilities outside the United States, including facilities in Brazil, Canada, China, England, Ireland, Italy, Mexico, the Philippines, Singapore, Spain, and Taiwan, according to its 2008 financial report. .

An important piece being gained through the Wyeth acquisition by Pfizer is Wyeth's biopharmaceutical campus in Grange Castle, South County Dublin, Ireland. Wyeth opened the EUR 1.8 billion ($2.5 billion) facility in 2005. The facility performs drug fermentation, sterile fill–finish, process development, and vaccine conjugation. Grange Castle is a part of the Wyeth biotechnology manufacturing network, which includes facilities in Andover, Sanford, Pearl River, and Algete, Spain.

Merck and Schering-Plough . Merck's pending $41-billion acquisition of Schering-Plough is expected to close in the fourth quarter of 2009. As Merck waits for the finalization of the transaction, it is proceeding with a restructuring plan that was announced in October 2008 and put into place before its pending merger with Schering-Plough. The global restructuring will eliminate approximately 7200 positions (6800 active employees and 400 vacancies) within all areas of the company by the end of 2011. Approximately 40% of the total reductions will occur in the US, and the total number of senior and mid-level executives will be reduced globally by 25%. As of March 31, 2009, the company had eliminated approximately 2800 positions in connection with the program.

The restructuring program includes a new customer-centric sales model and a broadening of its external resources. Merck says it will further focus its manufacturing capabilities on core products and outsource non-core manufacturing. Merck will consolidate work in basic research operations in given therapeutic areas in four locations, which will result in closing three basic research sites by the end of 2009, according to Merck's first-quarter 2009 financial report. These sites are located in Tsukuba, Japan; Pomezia, Italy; and Seattle, Washington. These restructuring initiatives are in addition to an earlier restructuring program that was announced in 2005 and completed at the end of 2008.

Schering-Plough is also proceeding with its own restructuring. In April 2008, the company announced a productivity transformation program with a target of achieving annual cost savings of $1.5 billion by 2012, which includes achieving cost savings of $1.25 billion by the end of 2010. This initiative includes reducing the number of plants worldwide by 2012. The company's principal pharmaceutical manufacturing facilities are in Belgium; Brazil; France; Ireland; Kenilworth, New Jersey; Mexico; the Netherlands, Puerto Rico; Research Triangle Park, North Carolina; and Singapore.

A combined Merck and Schering-Plough will have sales of $47 billion, based on 2008 sales. In addition to individual company restructuring, once merged, a combined Merck and Schering-Plough expects to achieve annual cost savings of approximately $3.5 billion by 2011. In acquiring Schering-Plough, Merck hopes to expand its position in emerging markets and biologics. Schering Plough generates about 70% of its revenue outside of the US, including more than $2 billion from emerging markets, according to a March 2009 Merck press release. This position in emerging markets will help Merck achieve its goal of being one of the top five pharmaceutical companies, based on market share, in emerging markets. The combined company is expected to generate more than 50% of its revenues outside the US. On the manufacturing side, Schering-Plough provides Merck with more capacity to support anticipated growth in biologics and sterile medicines.

Roche and Genentech . Roche completed its acquisition of Genentech in March 2009 and expects to complete the integration of the two companies by the end of the year, according to Roche's first half 2009 results. Roche hopes to achieve productivity gains by consolidating manufacturing and administration activities with a synergy target of CHF 1 billion ($936 million) annually. The company will incur total one-time integration costs of approximately CHF 3 billion ($2.79 billion).

As part of its integration strategy, Roche is reshaping its manufacturing network to concentrate activities, align capacity requirements, and improve operational efficiency. Roche announced in its first-half 2009 results that the second bulk-drug production unit at Genentech's Vacaville, California, facility will be closed, and it will discontinue manufacturing at Roche's facility in Nutley, New Jersey. Also, a new unit at Roche's Penzberg, Germany, plant will not be completed.

Despite these changes, Roche is proceeding with several investments. In January 2009, the company began construction for a technical R&D building in Basel. The new facility will house a center for the development of production methods and the manufacture of clinical samples. In June 2009, Roche inaugurated a new production center for sterile drugs, including liquid, lyophilized vials, and prefilled syringes, in Kaiseraugust, Switzerland. Also, Roche and its network of manufacturing partners have scaled up production of Roche's antiviral drug Tamiflu (oseltamivir phosphate), and by the beginning of 2010 will be able to supply up to 400 million packs annually, should the need arise. In addition, Roche maintains sublicenses to three manufacturers to produce generic oseltamivir for pandemic use in China, India, and specified developing countries.

In acquiring Genentech, Roche inherits several recent projects, as outlined in Genentech's 2008 financial report. In 2008, Genentech completed construction of a new fill–finish, warehousing, and distribution facility in Hillsboro, Oregon. FDA licensure of the fill–finish operation is expected in late 2010. In June 2007, Genentech began construction of a new Escherichia coli manufacturing facility in Singapore to produce the bulk drug substance of Lucentis (anibizumab injection) and other E. coli–derived products for the US market. FDA licensure of the site is expected for the first half of 2010. In May 2007, Genentech acquired land in Dixon, California, and began construction of a research support facility, which is scheduled to be completed in late 2009. Also, Genentech has an agreement with the contract manufacturing organization Lonza (Basel) under which it can elect to purchase Lonza's biopharmaceutical manufacturing facility currently under construction in Singapore. The facility is expected to be licensed for the production of the bulk drug substance for Avastin (bevacizumab) in 2010.


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