Pharma shake ups may effect retail drug, eventually

Drug Store News, July 23, 2001 by Diane West

NEW YORK -- Roche, Bristol-Myers Squibb and GlaxoSmithKline all announced major company changes with significant workforce implications recently, but industry analysts said retail pharmacy need not worry--vet.

Thus far, according to some analysts, these manufacturing-side changes seem to be cost-cutting measures and have left distribution relatively alone. But Mark Husson, an analyst at Merrill Lynch, said retailers should keep their eyes on cutbacks in research and development.

"Whatever manufacturers do involving the drug pipeline always has an indirect effect on retailers," Husson said. "Retailers should be concerned about cutbacks in manufacturing when they hit R&D, because then it becomes a product pipeline issue."

Basel, Switzerland-based Roche Holding AG's announced plans to trim about 3,000 jobs from its global pharmaceuticals workforce, including 900 in Nutley, N.J., and 200 in Palo Alto, Calif., in late May, added fuel to speculation about a possible merger with Novartis.

Novartis purchased 20 percent of Roche's voting shares in May, but both companies remain silent on merger rumors. Bristol-Myers Squibb and DuPont followed suit one week later when BMS agreed to buy DuPont's pharmaceutical division for an estimated $7.8 billion in cash. At the time, several analysts predicted "massive" job cuts from the acquired DuPont division.

By mid-June, GlaxoSmithKline acknowledged plans to cut more than 2,000 jobs over the next three years as a result of closing several manufacturing plants in the United Kingdom and elsewhere.

Cost-cutting measures

Raymond James & Associates analyst Mike Krensavage said Roche, BMS and GSK all have cost-cutting in mind.

"The thread that runs through the Roche, BMS and GSK deals is they are relying on cost savings because they have had a difficult time producing enough new drugs," he said. The loss of the Xantac patent was, in part, a factor that pushed Glaxo into its merger with SmithKlineBeecham, he said. "If the BMS hypertension drug Vanlev (omapatrilat) had succeeded, it would not have needed to pursue DuPont."

BMS's application for Vanlev received priority Food and Drug Administration review in January 2000 but was later withdrawn due to side effect concerns. BMS put off seeking FDA approval for the drug once again this past May until clinical trials are completed.

Krensavage also predicted that the rising tide of patent battles between branded and generic companies will also figure in to company mergers and acquisitions.

Generally, however, the pharmaceutical industry is viewed as one of the healthier ones in the current economy. "It is certainly one of the [fastest] growing," Krensavage said. "But investors have become accustomed to performance. When they can't perform, drug companies look to save costs."