First Pfizer, then Merck, now Bristol-Myers Squibb plans to cut jobs as the pharmaceutical industry wrestles with profits being siphoned off to generic drugs.
Bristol-Myers Squibb, whose best selling product is the anticoagulant Plavix, said Wednesday it would lay off about 4,300 employees and close more than half of its manufacturing plants in a broad restructuring aimed at cost savings of $1.5 billion by 2010.
Bristol-Myers is the latest brand drug maker to reduce its work force, as the industry struggles to battle generic competition following expirations of key drug patents.
Pfizer Inc., the world’s largest drug maker, earlier this year said it plans to cut 10,000 jobs to counter expected revenue losses from generic versions of its antidepressant Zoloft and Norvasc blood pressure treatment. Merck & Co. also plans to slash about 7,000 positions by the end of 2008 as it faces generic competition against its top-selling Fosamax osteoporosis treatment and a potential threat against its cervical cancer drug Gardasil from GlaxoSmithKline’s Cervarix, now available in Europe and awaiting U.S. approval.
“It is difficult to see our valued colleagues leave the company, but right-sizing our work force across all areas is critical to achieving our productivity goals and enhancing the competitive position of the company,” Bristol-Myers Chief Executive James Cornelius said in a statement.
The job cuts at Bristol-Myers represent 10 percent of its staff and will largely be made in 2008 and 2009. The company also said it will close more than 50 percent of its factories by 2010 and reduce by 60 percent the number of brands in its mature products portfolio by 2011.
Looking ahead, the company expects a sharp downturn in earnings and revenue after Plavix’s key patent expires in November 2011, Cornelius said at an investor meeting in New York Wednesday. “We don’t have a complete answer on how to offset or mitigate that cliff,” he said.
Plavix, which the company markets with Sanofi-Aventis SA, booked $1.25 billion in sales in the most-recent quarter, helping double Bristol-Myers’s third-quarter profit and offset declining sales of cholesterol drug Pravachol.
Bristol-Myers also lowered its 2007 net earnings forecast. It now expects 2007 net earnings of $1.15 to $1.20 per share, compared with a prior forecast of $1.28 to $1.33, due to restructuring charges. The company, however, reaffirmed its adjusted earnings guidance at the high end of the range between $1.42 and $1.47 per share.
For 2008, the company forecast adjusted earnings of $1.65 to $1.75 per share. Analysts polled by Thomson Financial expected earnings per share of $1.46 for 2007 and $1.72 for 2008.
In a note to clients, Banc of America Securities analyst Chris Schott continued to express concern over upcoming patent expirations, despite the company’s effort to cut costs.
“We do not believe that the potential near-term upside from expanded cost reductions will be able to offset the next wave of patent expirations in key Bristol franchises,” said Schott, pointing to Plavix as well as anti-psychotic drug Abilify.
With sales rising 34 percent to $420 million in the third quarter, Abilify is also the fastest growing atypical anti-psychotic in U.S. and European markets, said Tony Hooper, president of Bristol’s U.S. pharmaceuticals unit, at the meeting. Abilify’s key patent expires in the U.S. in 2014. Bristol-Myers licenses Abilify from Japan’s Otsuka Pharmaceutical Co.
Meanwhile, Fitch Ratings said Wednesday the pharmaceutical industry will likely experience continued pressure from generic drug developers and regulatory scrutiny in 2008. The outlook for the sector remains stable, nonetheless, the ratings agency said.
In addition to the staff reductions and plant closings, the company plans to spin off its medical imaging business and review options for ConvaTec, a wound care products supplier, and its Mead Johnson Nutritionals business. The company also hinted at more buyouts, saying it “seeks to reallocate resources to enable additional strategic acquisitions,” such as the recent purchase of biopharmaceutical company Adnexus Therapeutics.
Bristol-Myers also said it is boosting its quarterly dividend by 11 percent to 31 cents from 28 cents per share. This is the first increase in five years.
Shares of New York-based Bristol-Myers rose 20 cents to close at $29.26.