PharmExec Blog

The High Cost of Staying Lean

It’s annual meeting time for Big Pharma — and trimming the fat to deliver more bacon to shareholders is the C suite’s preferred plat du jour. But taking costs out of the business can carry a staggering special supplement charge to the menu, with far more at stake than the economizing equivalent of that McDonald’s Happy Meal.

Once again, its the biggest Big Pharma of all that sets the pace. Pfizer’s latest financial report to shareholders provides a rich example of the high price of scaling down. To help digest the Wyeth acquisition alone, the company has swallowed more than $5.6 billion in employee termination charges over the past three years. Another $1.1 billion is due to be paid this year and next to account for layoffs associated with the closure of Pfizer’s Sandwich UK  research facility and the planned 25 reduction in overall spending on R&D.

All told, Pfizer’s “let’s get lean” diet has led to the departure of more than 36,000 employees since a formal program of rolling staff cuts called Adapting to Scale was launched in 2005 — with another 13,000 still to go in order to meet the Wyeth integration target of a 15 per cent reduction in the combined company workforce.  The total payout bill estimated by the forensic functionaries who fill all those holes in the Albert Hall? At least $9 billion, and with associated charges as much as $12 billion.

That’s no small change even for a company as large as Pfizer, which explains why the terms of separation have become progressively less generous as the number of affected employees increase.  But give some credit where its due: our own informal review of company exit packages reveals that Pfizer still sets the industry standard in terms of generosity.

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