The repercussions of Pfizer's dramatic Exubera exit are finally filtering through to West Pharmaceutical Services, with the company preparing to restructure its affected Tech Group contract manufacturing unit.
A plant closure and job cuts are on the way for the wounded Tech Group, to be completed by the end of 2008, with an expected saving of $3m that year and annual operating savings of $7m thereafter, it was announced today.
Specifically, the company will consolidate two of its tool production operations into one facility, in Scottsdale, Arizona, and by reductions and consolidations at its other production, engineering and administrative operations in North America. 250 positions -13 per cent of the current workforce - will be axed. Incidentally this is believed to be 50 more positions than are currently being filled by workers dedicated to the Exubera contract.
As part of this action, the company is preparing to take a $12m hit in restructuring charges, including roughly $2.5m this year and an estimated $9.5m in 2008.
Fingered for the blame is Pfizer after it made the shock announcement on October 18 this year that it was abandoning the Exubera inhaled insulin product. Nektar, Pfizer's development and commercialisation partner and also Tech Group's customer, "has stopped ordering the Exubera inhalation device that the Tech Group produces", read a statement released by West Pharma.
However, the Tech Group's investment in Exubera went beyond that of simply a contract manufacturer and what started out as a potentially very lucrative deal for the firm has ended up as a bitter disappointment.
Together, Nektar and West custom built a plant dedicated to the Exubera device. Once the product got the green light from the Food and Drug Administration (FDA) in mid 2006, West hired and trained over 100 new staff dedicated to making the Exubera device and added extra shifts.
A year on and things have fallen apart - after lacklustre sales, in August Nektar was forced to ask the firm to scale back production to one shift per day. As we now know, all new orders have ceased altogether.
West said that it has now been left with investments related to the Exubera project of $15m of current assets and production facilities and $13m of intangible assets.
While the bulk of the $13m will be written down as an impairment charge in the fourth quarter of 2007, West's vice president and treasurer, Michael Anderson, told in-PharmaTechnologist.com in an earlier interview that he believes the $15m is "fully recoverable" because Nektar "is contractually obligated in this regard."
"They have a contractual interest in the machinery, equipment and inventories, which they have either funded or are obligated to fund."
At the time the firm conceded that it had developed no specific plans in regard to filling capacity at the Exubera plant with other manufacturing work, and that the facility would likely require substantial refitting in order to produce a different product or products there.
Anderson said that any future work at the site would "depend on whether our customer finds an alternative to the terminating Pfizer arrangement."
It appears that with today's announcement, the chance of any alternative arrangements being made with Nektar is now unlikely.
"The restructuring proactively addresses the recent reduction in business due to changes in customers' marketing plans by reducing the operating costs and increasing the manufacturing efficiency of the segment", said Donald Morel, West's chairman and CEO.
"These actions, while difficult, are essential to West to create the right operational footprint for the level of business we have today and ensure we remain competitive and financially strong for the future".
Going forward, West indicated that it will look within its own organisation to generate revenue for the Tech Group and rely less heavily on outside contracts.
"The restructuring will match the size of our operations to Tech's forecasted business and allows us to focus our human and financial resources on our strategic goal of expanding Tech's proprietary product portfolio", said Morel.