The pharmaceutical industry is heavily capital reliant for every dollar they spend on capital they spend only 36 cents on labor. But capital expenditures have been decreasing, mostly to eliminate redundancies created by company mergers.
As talked about in previous posts most major pharmaceutical companies already have factories all over the world so companies like Pfizer are closing factories to reduce costs and continue to bolster profits. Pfizer plans to close a facility the United Kingdom and shift some operations from its Connecticut R&D facility to its Cambridge, Massachusetts site. They have gone from over 81 facilities in 2009 to 76. Personnel was at 111,500 after the merger with Wyeth, down from 120,700.
In an industry reliant on a steady supply of new drugs many companies are cutting their research and development. GlaxoSmithKline, Pfizer and AstraZeneca are all cutting their R&D budget. AstraZenaca is cutting 1,800 R&D jobs while Pfizer is reducing total expenditure on R&D from 11 billion after their acquisition of Wyeth to between 8 and 8.5 billion. In contrast Merck has increased their R&D expenditures by over 10% from 2008 to 2009, some of this was due to their acquisition of Schering-Plough. Overall they will still be spending around 14% of their revenue on R&D. At the same time Merck has been laying off thousands of employees, half of which were in the U.S., to reduce production costs and to outsource non-core manufacturing, they have cut over 11% of there workforce.
In order to reduce costs the industry has been outsourcing manufacturing jobs over the years. Pfizer recently entered an agreement with India-based Claris Life sciences Ltd. to commercialize 15 sterile injectable medicines. Pfizer stated back in 2009 that they wanted to increase their outsourced manufacturing from 17% to 30% over the next three years. Another major thing being out sourced is analytical testing. Clinical trials in India are expected to increase to 8% of total worldwide testing by 2016. Soon every major drug manufacturer will have operations in India thanks to their trial recruitment, lower labor costs, a rich talent pool and tax incentives.
Sources
http://www.pfizer.com/files/corporate_citizenship/cr_report/manufact_supply.pdf
http://clients.ibisworld.com.proxyau.wrlc.org/industryus/competitivelandscape.aspx?indid=487
I had no idea that so much outsourcing was being prompted by Pfizer, especially to the degree your percentages indicate, Matt. Good work on digging up that information. Are you thinking that it will be a successful corporate strategy for Pfizer? It seems like, from what you wrote in your article, that by utilizing both an untapped market and talent pool that Pfizer has some definite opportunity for even further growth.
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