PHM-Exch> Pfizer and others: R&D threat

[Claudio Schuftan]

From: Will Podmore <W.Podmore at bso.ac.uk>

Last month the largest pharmaceutical company in the world decided its
profits needed a boost – by closing one of Britain’s premier research
institutes…

Blow to Britain as Pfizer closes Kent labs

Workers, March 2011 issue



Nothing makes finance capitalists happier than a good spot of destruction.
On 1 February, shares in Pfizer, the world’s largest pharmaceutical company,
soared by 5.5 per cent. The reason: its announcement that it is to close its
giant research and development site in Sandwich, Kent, as part of a
reduction in spending to offset expected reductions in revenue. The decision
“should be met with a sigh of relief”, said an analyst for Credit Suisse.



What if a company took the opposite point of view? Two days after Pfizer
made its announcement, rival drug company Merck announced a different
strategy, one of investing in research. “I am not blind to what investors
want us to do. They want us to invest in prudent ways, in ways that actually
drive return on investment and productivity,” said its CEO. “But as a
company we believe that the only sustainable strategy in the health-care
environment that we’re in is real innovation that makes a difference to
patients and payers.” Its shares promptly fell by 2.2 per cent.



Pfizer used to be an innovative pharmaceutical company. But with new
products thin on the ground and patent protection running out on profitable
drugs like Lipitor, which combats cholesterol (sales £427 million in Britain
in 2007), it seems to have decided around a decade ago to buy innovative
companies rather than come up with ideas itself. It started buying, and
buying big – using borrowed money.



Last October it bought King Pharmaceuticals for $3.6 billion – but that was
a small purchase in comparison with what went before. In 2000 it bought
Warner-Lambert for $115 billion, following that up three years later with
the acquisition of Pharmacia for $60 billion, and along the way turning
itself into Britain’s largest pharmaceutical company and the largest
supplier of drugs to the NHS.



In 2009 came another huge purchase, Wyeth, for $68 billion, but to complete
it Pfizer drained its own cash reserves by $22.5 billion and took on bank
loans of a further $22.5 billion, saddling itself with debt (the remaining
$23 billion was financed with a share issue). At the time, one of the prices
to be paid was the loss of 20,000 jobs around the world. Now – surprise,
surprise – it needs to save even more money, and is cutting deep into R&D
across the globe.



Between them, Wyeth and Pfizer spent $11 billion on global R&D in 2008. In
2012, that figure will be cut by almost 30 per cent, down to $8 billion.
Apart from Sandwich, around 1,000 jobs are to go in Connecticut as well –
though more money is going to Pfizer’s China Research and Development Center
in Shanghai. (China is a hot destination for pharmaceutical giants. In 2009
Novartis announced $1 billion investment in a biomedical research centre in
Shanghai, to be the company’s third largest R&D institute in the world.)



Devastation



Unite, the union, issued a statement from national officer Linda McCulloch
saying, “This is absolutely devastating news for the local economy.” She
also pointed out that Pfizer is the biggest employer in the area. “The staff
at this site are at the cutting edge of developing life-saving drugs. These
are exactly the sort of jobs we need to keep in this country. Unite will be
doing everything possible to save these jobs and seek alternatives to
closure.”



For Sandwich, the closure will be a body blow, with the loss of 2,400 highly
skilled jobs directly and another 2,400 indirectly, in contractors. The
historic town has a population of only 6,800, though of course many Pfizer
staff live outside it. But it is also a body blow for Britain: the Sandwich
laboratories house the greatest concentration of pharmaceutical researchers
in the country.



The pharmaceutical industry is essential to the future of Britain. It
employed around 72,000 people in 2009, of whom 27,000 worked in R&D (though
that figure was 5,000 down on the tally in 2007). But its importance far
exceeds the number of the workforce. It accounts for £14.5 billion in
exports, and made up the bulk of a trade surplus in medicinal products of £9
billion in 2009 – greater than any other industrial sector. Last year, for
example, it accounted for 24.9 per cent of all British exports to the US,
according to the US Census Bureau.



In 2007 pharmaceutical companies spent £4.5 billion on R&D in Britain. To
put that into context, that was 28 per cent of all British industry
investment in R&D.



But that figure must surely be set to fall: AstraZeneca announced on 1 March
2010 that it will close its Charnwood research centre near Loughborough –
after the university the second-largest employer in the area – with the loss
of 1,200 jobs, as well as a smaller facility in Cambridge. In February last
year, GlaxoSmithKline announced major job losses in Britain as part of a
global reduction of 4,000 staff, with hundreds of jobs to go in its plant in
Harlow.



The giant companies are pinning their hopes on a new paradigm in drug
development, known as “open innovation”. Instead of developing new ideas
in-house, they think they can source innovative new medicines from small
biotechnology companies. They don’t actually know if that strategy will
work, but they do know that any saving on their own R&D costs translates
directly into more money – short term – for shareholders. And the short term
is where Pfizer is looking.



Pfizer calls its strategy “Invest to Win”, allegedly focusing on six disease
areas, but increasingly it is looking as though winning profits is all it is
concerned about. It has still to live down its admission in 2009 that it had
illegally promoted drugs for uses that were not approved by the regulatory
authorities. That resulted in a $2.3 billion fine in the US, described by
BBC Online as “the largest healthcare fraud settlement in the history of the
Department of Justice”.



Protection



Pfizer’s presence in Britain began in 1952 with the opening of a factory in
Folkestone, as a direct result of what is now sneeringly termed
“protectionism”. It had several antibiotics it wanted to sell to the NHS,
but government regulations limited the bulk importation of medical materials
and restricted the sale of medicines not made in Britain. So Pfizer had to
set up a plant here.



Two years later, Pfizer needed to expand the factory, and found its present
site in Sandwich. The Folkestone site was consolidated into Sandwich in
1960, by which time it employed more than 2,000 workers in Kent. By the end
of 1970s, according to Pfizer’s own information, the Sandwich laboratory was
the largest research facility owned by an American company operating outside
the US.



Success



A string of research successes followed, including: Mansil (for malaria),
Feldene (for rheumatism); the antifungal Diflucan; Cadusa (for
hypertension); and most famously Viagra. These drugs not only improved
health but also boosted British industry and employment. Being developed
here, they were also more likely to come onto the market quicker, benefiting
British patients more quickly. Istin, for example, offering relief from
angina and hypertension with a single daily dose, went on sale in Britain
first.



Naturally, the Sandwich staff affected were the last to know. Among those
who received early warning was the European Commission in Brussels. Pfizer
has huge markets in the European Union, and likes to keep good relations
with it. The reaction was typically vague and useless. Research Commissioner
Máire Geoghegan-Quinn said it was a “wake-up call” for policymakers, adding,
“I’m sure I’ll be given lots of ideas about things to do.” One of her
favourite policymakers is actually based in the Sandwich laboratories. Gill
Samuels, Pfizer’s head of science policy and scientific affairs, sits on the
European Research Area Board, set up by the Commissioner to advise on
research policy.



Business minister Vince Cable was also vague. He called the decision
“extremely disappointing”, and said he would be having meetings with Pfizer
(“as a matter of urgency”, naturally) to discuss alternative uses for the
Sandwich site. So much for defending British interests! The government has
set up a “task force” to look at possible alternatives. It is set to report
early in March. There is talk that the University of Kent might open a
Technology Innovation Centre there, but in terms of impact that would be a
far cry from Pfizer’s immensely influential laboratories.



Geoghegan-Quinn used the announcement to call for increased government
investment in R&D. Nowhere does she mention policy action to force companies
to invest – after all, that would interfere with commercial freedom and the
single market. And yet were it not for postwar policies designed to protect
and foster the pharmaceutical industry, Pfizer wouldn’t be in Sandwich at
all.



Make it here



If our basic industries are to survive, we need long-term policies to
protect them. How about saying that companies can’t sell in bulk to the NHS
unless they research and manufacture in Britain? It would break EU law. It
would go against everything governments, Labour and Conservative, have been
doing for decades. It would take us back to … well, to 1952, and a
Conservative government. But wiser this time – it would be a start in
reversing the industrial abandonment of Britain.



A week after Pfizer’s announcement, the Saga Group said it was planning to
take on up to 1,000 workers for its ‘healthcare business’, based in East
Kent. Goodbye industry, hello service sector. That’s the trend in Britain
today, but if allowed to continue it is a trend that will wreck the country.
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