Bristol-Myers Squibb Cuts Back

BRISTOL-MYERS SQUIBB has embarked on a $1.5 billion cost-cutting program. The company will lay off 10% of its employees—roughly 4,350 people—and shed more than half of its 27 manufacturing facilities by 2010.

In announcing the cutbacks, CEO James M. Cornelius says they are necessary because BMS is careening toward a "patent cliff" in 2012, when generic competition will emerge for the blood thinner Plavix. In the second quarter of this year, the drug represented one-quarter of BMS's sales of $4.9 billion.

"We don't have a real answer how to offset or mitigate that cliff," Cornelius told investors last week during an update of the firm's ongoing strategy review. "Part of this strategic review, if not every part of it, is targeted longer term on mitigating the size of the cliff and accelerating the rebound from that cliff," he said.

Reducing the size of BMS's manufacturing network will account for $400 million of the planned savings. The company has already announced plans to shutter sites in Mayagüez, P.R.; Barcelona, Spain; and Colón, Panama.

BMS has formed a team to evaluate divesting or shuttering other sites. At the same time, the company will continue to use third-party suppliers for back-up production of newer drugs and "aggressively outsource manufacturing" of mature products, says Lamberto Andreotti, chief operating officer of its worldwide pharmaceuticals business.

BMS is the latest among the big pharma companies to overhaul its manufacturing strategy. Pfizer, since its acquisition of Pharmacia in 2003, has embarked on an extensive manufacturing restructuring to shrink its number of production sites to about 48 from 93. Pfizer executives revealed at a recent investor conference in Hong Kong that the company now plans to double the amount of manufacturing it outsources to 30%, with much of that business likely headed to Asia.

"I think the model is going to change significantly over the next period as to what parts of our business remain core and to what parts we are linked on the outside," Martin Mackay, president of Pfizer's global R&D operations, tells investors.

Meanwhile, AstraZeneca said this past summer that it would phase out in-house manufacturing altogether, and Merck & Co. is in the midst of cutting about 20% of its production sites.