Pfizer plans to double drug production outsourcing

By Kirsty Barnes

- Last updated on GMT

Related tags: Pfizer

Pfizer's latest cutbacks will provide a new outsourcing opportunity
for contract manufacturing organisations (CMOs) in low-cost
destinations as the drug giant announces plans to double its amount
of drug production outsourcing.

The plans were revealed during a recent analyst meeting, when the world's biggest drug maker also announced that it would shut down two US manufacturing plants - one in Brooklyn, New York and one in Omaha, Nebraska - and try to sell a third plant in Feucht, Germany, culminating in the loss of 10,000 jobs.

The closures will also affect research and development, with three R&D sites in the US being deemed surplus to requirements and possibly two more, in France and Japan, under threat.

Pfizer's restructure comes in the face of patent expiries for some of its biggest drugs and a corresponding sharp dive in revenues - profits dropped 43 per cent in the fourth-quarter of 2006 as generic products began to make their presence felt - as well as the recent failure of a late-stage pipeline project, torcetrapib, upon which the firm was pinning its new financial hopes.

Thus, the announced cost cutting and consolidation programme aims to save the business up to $2bn (€1.5bn) annually and is part of a wider plan to "transform"​ the way Pfizer does business, according to Pfizer CEO Jeff Kindler, who was appointed last July.

"We are facing significant challenges in a profoundly changing business environment,"​ he said. "We must fundamentally change the way we run our company to meet these challenges."

As part of a "broad profile of new cost savings initiatives," Pfizer said it will now "aggressively pursue outsourcing."

"We need to maximize near- and long-term revenues from our current product portfolio, from our pipeline and from external opportunities,"​ said Dr John LaMattina, head of Pfizer Global Research and Development.

"We must reduce our absolute costs and put in place a more flexible cost structure."

"These and other actions will allow us to reduce costs in support services and 'bricks and mortar' and to redeploy hundreds of millions of dollars into the discovery and development work of our scientists,"​ he said.

Pfizer has indicated that its manufacturing operations are earmarked for a particular increase in outsourcing activity.

Specifically, it plans to reduce the number of manufacturing sites from 93 to 48 by the end of 2008, while at the same time increasing its outsourcing, especially to lower cost destinations, said David Shedlarz, Pfizer vice chairman during the analyst meeting.

"The last major opportunity to reduce costs in our manufacturing is through purchased materials, which currently account for 41 per cent of our manufacturing costs."

As a result, Pfizer will undertake more outsourcing of these materials as part of the attempt to lower these costs, he said.

A process that has already begun - back in October Pfizer CentreSource announced that it had decided to outsource the manufacture of some of its active pharmaceutical ingredients (APIs) to two Asian contract manufacturers, ScinoPharm of Taiwan and Shanghai Pharmaceutical Co. of China to "enable more cost-efficient API production."

In addition, Shedlarz announced that "currently 15 per cent of our product manufacturing is externally outsourced and we plan to double this to 30 per cent by 2010."

Meanwhile, in its research and development division, the firm plans to reduce its site infrastructure, discontinue discovery in two therapeutic areas and increase outsourcing, as well as increasing the outsourcing levels of all its support functions, however, no further details of this were given.

"In regards to outsourcing, everything is currently on the table,"​ a Pfizer spokesperson told Outsourcing-Pharma.com.

"However, at this point we are not ready to reveal any specific details about where this outsourcing will take place, or which specific parts of our business will be affected - but stay tuned."

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