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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's Fourth Annual Manufacturing Rankings reveal the ongoing consolidation, facility rationalization, and shifting manufacturing priorities of the large pharmaceutical companies. Big Pharma is continuing its restructuring and cost-saving measures, and more of the same is expected in the near term as the industry awaits the closure and integration of three important megamergers: Pfizer's (New York) pending $68-billion acquisition of Wyeth (Madison, NJ); Merck & Co.'s (Whitehouse Station, NJ) pending $41-billion acquisition of Schering-Plough (Kenilworth, NJ); and Roche's (Basel, Switzerland) $47-billion completed acquisition of Genentech (South San Francisco, CA). These deals are not only critical for the individual companies involved but also reflect the industry's increased interest in strengthening its biopharmaceutical product portfolios and the resulting resource allocation to support biologic-based development and commercialization. Also, companies are making select investments in emerging markets.
(DON FARRALL, CREATIV STUDIO HEINEMANN/GETTY IMAGES)
Big Pharma's renewed focus
Tables I–II list the rankings of the top 50 pharmaceutical companies by 2008 pharmaceutical sales (i.e., human prescription products and vaccines). A review of these companies' manufacturing strategies shows continued restructuring, reveals select investment in biologics and emerging markets, and raises the question of how recent mergers and acquisitions strategy may affect these plans.
Table I: Top 50 pharmaceutical companies (Rankings 1â25)
Pfizer and Wyeth. Pfizer is continuing its strategy of manufacturing-facility rationalization and supply-chain optimization as it prepares for the closure and eventual integration of Wyeth. During 2008, Pfizer completed cost-reduction and transformation initiatives that it first launched in 2005 and subsequently expanded in 2006 and 2007. A key part of those measures was to transform its global manufacturing network into what the company terms a "global strategic supply network," which consists of its internal network of plants, strategic external manufacturers, and purchasing, packaging, and distribution activities. As of the end of the first quarter of 2009, the company had reduced the number of plants to 46, down from 93 in 2003. The reduction included the sale of seven plants and related sites to Johnson & Johnson (J&J, New Brunswick, NJ) as part of J&J's acquisition of Pfizer's consumer healthcare business in 2006. Pfizer plans to further reduce its global internal network of plants to 41, according to Pfizer's 2008 financial report. With these further reductions, Pfizer will have reduced the number of plants by roughly 50% and the number of manufacturing employees by approximately 53% compared with 2003 levels. As it rationalizes its manufacturing base, the company plans to increase its level of outsourcing from approximately 24% of its products on a cost basis to approximately 30% during the next two years, according to its first-quarter 2009 financial report.
Table II: Top 50 pharmaceutical companies (Rankings 26â50)
In January 2009, Pfizer launched a new cost-reduction initiative aimed at reducing adjusted total costs by $3 billion. The program is expected to be completed by the end of 2010, and the savings realized by the end of 2011. The company plans to reinvest approximately $1 billion of these savings in the business and to use the remaining $2 billion to reduce adjusted total costs.
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.
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.
On the horizon...
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.
Bristol-Myers Squibb. Bristol-Myers Squibb (BMS, New York) is proceeding with a plan, announced in December 2007 and July 2008, to transform itself into what it calls "a next-generation biopharmaceutical company." Part of the effort includes a productivity initiative in which the company hopes to achieve annual productivity cost savings and cost avoidance of $2.5 billion by 2012, according to BMS's first-quarter 2009 financial report. Reflecting its commitment to biologics, BMS is investing $750 million in a new large-scale, multiproduct, bulk biologics manufacturing facility in Devens, Massachusetts. Construction of the facility began in early 2007 and is expected to be operationally complete by the end of 2009. BMS expects to submit the site for regulatory approval in 2010 and to begin production of biologics compounds in 2011, according to its first-quarter 2009 report.
sanofi aventis. sanofi aventis (Paris) is proceeding with several investments. In pharmaceuticals, projects include the construction and expansion of several R&D facilities in France (Chilly/Longjumeau, Montpellier, Toulouse, Massy, and Vitry/Alfortville) and the US (Tuscon, Arizona) and the construction of filling and conditioning lines at a facility in Le Trait, France, according to the company's 2008 annual financial report. Several vaccine-related projects are also underway. These projects include a research facility in Toronto; a new vaccine campus in Neuville, France; formulation and filling facilities in Val de Reuil, France; a bacteriological bulk facility in Marcy l'Etoile, France; an influenza bulk vaccine facility in Shenzhen, Guangdong, China; and the finalization of bulk and filling facilities in Swiftwater, Pennsylvania.
For the new vaccine-manufacturing facility in Neuville, sanofi is investing EUR 350 million ($496 million). The plant is expected to be operational in 2013 and employ 200 people. For the Shenzen project, sanofi began construction in October 2008 with the goal of producing influenza vaccines for the Chinese market by 2012, according to the company's 2008 annual report. The company also has an agreement with the vaccine manufacturer Brimex (Laboratorios de Biológicos y Reactivos de Mexico) and Mexican health authorities to build a new influenza vaccine-manufacturing facility in Ocoyoacac, Mexico State. sanofi is investing EUR 100 million ($142 million). The goal is to produce up to 25 million annual doses of seasonal flu vaccines for the Mexican market, with delivery of the first doses planned for 2012.
In May 2009, sanofi aventis introduced its Biolaunch project at its Vitry-sur-Seine, France, pharmaceutical production site. The nearly EUR 200-million ($283-million) investment will provide the company with its first cell-culture platform to produce monoclonal antibodies. sanofi–aventis plans to have the project completed by 2012 and to transfer current chemical activities at the Vitry-sur-Seine site by the end of 2011. The Biolaunch project is part of a long-term approach by sanofi to invest in biotechnology.
sanofi also incurred restructuring costs of EUR 585 million ($833 million) in 2008, which in part reflects the adaptation of industrial facilities in France and adjusting its sales force in response to changing pharmaceutical markets in Europe, primarily France, Italy, Spain, and Portugal, and the US.
Novartis. Key activity for Novartis (Basel, Switzerland) is construction of a new US-based vaccine-manufacturing facility and selective investment in emerging markets. In January 2009, the US Department of Health and Human Services awarded Novartis a contract for up to $486 million over eight years to support the design, construction, validation, and licensing for a cell-based influenza vaccine-manufacturing facilities in Holly Springs, North Carolina, to provide a prepandemic supply of influenza vaccine and capacity to manufacture 150 million doses of pandemic vaccine within six months of declaration of an influenza pandemic.
In another project, Novartis had announced plans to invest in a new large-scale cell culture plant in Singapore in 2007 to support monoclonal antibody production. Following the completion of the basic design of the facility in early 2008, the project was put on hold but could be resumed depending on the development of Novartis's biopharmaceutical pipeline, according to the company's 2008 annual financial report.
In emerging markets, Novartis's pharmaceutical division invested approximately $63 million in 2008 in a new production facility in Changshu, Jiangsu Province China, mainly to support the production of the antihypertensive drug Tekturna/Rasilez (aliskiren). The company is also investing $24 million in expanding a pharmaceutical plant in Chang Ping, Guangdong Province, China, to support the supply of its antimalaria drug Coartem (artemether and lumefantrine) to the World Health Organization and the local Chinese market. Novartis also made an initial investment of $100 million for the construction of two R&D facilities in Shanghai, China. In 2007, it opened up a start-up facility for staffing of 125 scientists, and in 2008, it broke ground for a new facility that will house approximately 400 R&D scientists and 400 other pharmaceutical division personnel.
As other pharmaceutical majors, Novartis is proceeding with a restructuring program. The company's plan involves streamlining and simplifying its organizational structures at its corporate headquarters and pharmaceutical and consumer health divisions, reducing staffing, and optimizing its supply networks. Its goal is to reduce its annual cost base by $1.6 billion by 2010 compared with 2007 levels. Novartis achieved annual cost savings of $1.1 billion in 2008, exceeding a target of $670 million.
For additional reading, view the corporate lineages of pharma's top companies in "The Pharma Family Tree."