Roche cuts 4,800 jobs as market feels squeeze

Roche is slimming down over the next two years Ex-press

Swiss pharmaceutical giant Roche has slashed six per cent of its workforce in response to recent drug setbacks and a global healthcare austerity drive.

The Basel-based multinational aims to save SFr2.4 billion ($2.42 billion) a year by reducing its workforce by 4,800 and outsourcing another 700 positions. Share prices rose on the announcement, but analyst reaction was mixed.

The “Operational Excellence Program” unveiled on Wednesday came as no great surprise as Roche had earlier given strong hints that it needed to bring costs under control. The details of the job cuts, due to take place over the next two years, were greeted with enthusiasm in some quarters.

“The cuts are quite deep and the market should be pleased that the company has taken a serious look in the mirror and did what was required,” Carri Duncan, an analyst at Zurich based Macquarie Group, told Bloomberg news agency.

Bank Sarasin said in a note that the cuts had exceeded its expectations of annual savings in the range of SFr1-2 billion. Sarasin added that “the plans seem to leave the company’s ability to innovate largely untouched”.

Dashed hopes

Roche, one the world’s biggest pharmaceutical companies and a leader in cancer treatments, has recently come under pressure from tightened drug testing standards, lowering hopes for some of its products.

The most high profile setbacks have been the rejection of its top selling drug Avastin for breast cancer treatment in the United States. In September, the company halted phase III trials for diabetes drug taspoglutide, while a rheumatoid arthritis drug trial was also suspended this year.

Roche completed the takeover of Genentech last year for an outlay of $47 billion (SFr46.7 billion), hoping to take advantage of the US biotech firm’s hugely successful research and development (R&D) platform that has produced a number of lucrative drugs.

But recent trials setbacks have led to some observers questioning the size of Roche’s R&D budget compared to the profits it produces.

Rahn & Bodmer bank analyst Birgit Kulhoff said she was “underwhelmed” with the overall size of Roche’s restructuring savings, that some had been expecting to extend to up to SFr4 billion per year.

Global job cull

The majority of job cuts will be in sales and marketing, particularly for products that have experienced problems. But Kulhoff was expecting the cost cutting knife to fall more heavily on R&D and Genentech, following cuts elsewhere in the Roche group.

“What we have seen coming out of the Genentech pipeline recently is not in relation to the amount of money invested,” Kulhoff told swissinfo.ch. “[But] it looks like they escaped completely from the restructuring.”

Another pressure bearing down on Roche – in common with the whole pharmaceutical, biotech and medtech industries – is a tightening of belts during a round of healthcare reforms around the world.

“We have seen a lot of monetary price reductions all over Europe and the US. [Healthcare authorities will] either not buy the more expensive drugs or they are demanding much bigger discounts from the pharmaceutical companies,” said Kulhoff.

Several other global pharmaceutical leaders have already been forced to cut jobs in an effort to reduce costs and protect profits.

Roche’s Basel-based rival Novartis announced it would slash 2,500 jobs (2.5 per cent of its workforce) in 2007.

The world’s largest drug maker, Pfizer, has said it will cut 19,000 jobs while Merck has plans to reduce its workforce by 15 per cent with the loss of 15,000 positions plus the axing of 2,500 vacant posts by 2012.

Operational excellence program

Roche announced on Wednesday that it will cut 4,800 jobs in the next two years – 6% of its 82,000 strong workforce.

The bulk of the losses will be in sales and marketing, where 2,650 jobs will be eliminated. Manufacturing (750 cuts) and R&D ( 600 positions) will also be hard hit.

Some 770 positions will be lost in Switzerland, but Roche said this will be mitigated by the arrival of 240 personnel from sites from other countries. Most of the job losses will be felt in the US.

In addition to the straight cuts, Roche will outsource a further 700 positions to third parties outside of the company.

The restructuring will cost Roche SFr2.7 billion but is estimated to reap savings of SFr1.8 billion in 2011 and SFr2.4 billion annually from 2012 onwards.

Roche

Founded in 1896, Roche is a world leader in cancer treatments, diagnostics and diabetes treatments.

Since completing the takeover of Genentech last year, Roche has become one of the largest biotech companies.

The multinational also produces anti-viral drug tamiflu that was widely stockpiled by governments during the bird and swine flu epidemics.

The group achieved an 8% sales growth last year of SFr49 billion and net profits of SFr8.5 billion. Profits were affected by one-off charges relating to the completion of the Genentech takeover.

In the first half of this year, sales rose 3% to SFr24.6 billion compared to the same period in 2009. Profits climbed 37% to SFr5.6 billion.

Listed on the blue chip Swiss Market Index, around half of the group’s shares are still owned by the founding Hoffmann and Oeri families. Rival pharmaceutical Novartis also holds a 33% stake in Roche.