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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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May 5, 2014

Pfizer/AstraZeneca: Asymmetric Cuts Look Likely

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Posted by Derek

So Pfizer is out today with some pretty bad financials, which are doubtless one reason for their determination to Go Out and Buy Somebody, whether they're an R&D powerhouse or not. They've also been reassuring the British government that they'll go ahead with the Cambridge research construction that AstraZeneca has begun, and that in general, they'll keep at least 20% of the R&D workforce in the country.

Problem is, if you look at those numbers, it means that someone is going to have to go, and these promises would tend to force the cuts more to this side of the Atlantic. Reuters has a detailed look at the issue, and it isn't fun reading:

John LaMattina, Pfizer's research chief from 2004 to 2007 and currently a senior partner at PureTech Ventures in Boston, agreed that the La Jolla cancer research jobs as well as neuroscience researchers in Cambridge, Massachusetts, were likely in jeopardy. He said Pfizer could also fold its U.S.-based immunology and respiratory research into existing AstraZeneca operations in Britain.

"If I was in any of these places, I'd worry about this deal going through," said LaMattina, , ,

. . .With Pfizer's promise to protect the UK research, jobs at AstraZeneca's oncology and neuroscience research centers near Boston and its MedImmune cancer research and development operation in Gaithersburg, Maryland, could also come under the cost-cutting knife.

It's just much easier to unload employees in the US than it is in most of Europe. And since the whole point of this proposed deal is to remake Pfizer in a more favorable British tax environment, the incentives are unfortunately quite strong to do just that.

Comments (17) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. PharmaHeretic on May 5, 2014 10:04 AM writes...

The financialism-based model (virus) is starting to run out of new opportunities for growth (hosts)..

Permalink to Comment

2. newnickname on May 5, 2014 10:14 AM writes...

Didn't Genzyme negotiate some tax break in Boston in exchange for a promise not to cut jobs or relocate them elsewhere? After they built their new facility, I think they pleaded 'financial hardship' and cut or moved jobs anyway. I don't recall what happened to the tax break.

(And I'm still experiencing intermittent problems with partial page loads and no "Post a Comment" box.)

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3. Curt F. on May 5, 2014 10:50 AM writes...

This whole situation is very unfortunate, but in addition to heaping scorn and blame on Pfizer, shouldn't we also wonder about corporate tax policy in the US?

If the US lowered corporate tax rates -- or eliminated them entirely -- it would remove the incentive for this type of merger. Keep in mind, corporate revenue, if it is payed out as dividends, is still taxable as interest income that accrues to shareholders.

And if instead revenue is reinvested in the company, well, wouldn't that tend to incentivize companies to hire more? Right now avoiding US taxes is causing Pfizer to park tens of billions of dollars offshore. Surely Pfizer's money is more likely to be used to hire domestic labor if the money is in America. (Job creation!)

America's poisonous combination of lax labor protections and high corporate taxes is incentivizing our largest companies to fire American workers. I'm not an expert or a policy wonk, but it doesn't really seem like sound policy to me.

Permalink to Comment

4. oldnuke on May 5, 2014 10:55 AM writes...

America would be much better off if they were to return to the Investment and the R&D tax credits of years past.

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6. Twelve on May 5, 2014 12:29 PM writes...

I hope the UK ministers look closely at the fine print of Mr. Read's letter, ie, 20% of what? And the promise of 'creating a substantial R&D innovation hub in Cambridge..." etc...well, exactly whose definition of 'substantial' will be used? Remember, you're dealing with a lawyer, and one who has a short term goal that essentially determines his fate as a corporate honcho.

Once the AZ acquisition has gone through and consolidation is underway, Her Majesty's ministers can fuss and grumble all they want, there'll be no way to unscramble that egg.

Permalink to Comment

7. watcher on May 5, 2014 12:36 PM writes...

I wonder of Pfizer's awareness that the difficulty in cutting staff in the UK is much greater than in the US. In the US, staff can be dismissed, simply because, but the UK requires consultation, paperwork, reviews. Best of luck to folks that will be in the firing line, US and/ or UK,, as we know that there will be plenty involved as a result of the merger.

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8. Anonymous on May 5, 2014 1:11 PM writes...

#7 it really isn't that difficult. AZ have obliterated their UK-based staff over the last few years. Oh the irony!

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9. Anonymous on May 5, 2014 1:16 PM writes...

#7 oh and of course not forgetting the 2500 lost when Pfizer shut Sandwich. They are well aware of what they're doing, and know they can do pretty much what they want with impunity. The UK government are as clueless as ever

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10. Ted on May 5, 2014 1:24 PM writes...

Hi all:

Maybe the gov officials in 'old' London should take a peek at how Pfizer honored their relationship with New London. Next stop, Luxembourg or the Cayman Islands?

"And now, just before its 80 percent tax abatement expires, Pfizer announced it, too, is moving out. On November, 9, 2009, Pfizer announced that it would close its research and development headquarters and leave New London.[18]"

http://www.ij.org/five-years-after-kelo-the-sweeping-backlash-against-one-of-the-supreme-courts-most-despised-decisions

-t

Permalink to Comment

11. Anonymous on May 5, 2014 1:28 PM writes...

It's pretty obvious the gig is up for big pharma, simple as that. It's just the next in a long line of industries which have spawned, grown, dominated, over-reached, contracted brutally and finally faded away like a fart on the wind. Novartis, GSK, Merck are all in the same boat, there's no escape.

Good luck everyone... If Pfizer offers you a package grab it with both hands and run

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12. Dr. Manhattan on May 5, 2014 2:17 PM writes...

"and finally faded away like a fart on the wind."

True, but just once could we arrange it so the hard working staff isn't down wind?

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13. Anonymous on May 6, 2014 1:58 PM writes...

I'm not sure it is easier to get rid of US staff than UK - just quicker. You can still effectively do what you like, it just takes you 6 months to do it. In the big scheme of things, this is chicken feed to big pharma and will not feature in the decision making process.

Getting the deal done is all that matters.

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14. marklar on May 6, 2014 11:13 PM writes...

It appears that there are going to be many people that will be 'treated with respect'. Nothing says 'respect' more than "we don't need you any longer".

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15. Nick K on May 7, 2014 12:17 AM writes...

#11: So true, so true.

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16. sisn on May 7, 2014 1:38 PM writes...

#6 Ian Read is not a lawyer by any stretch of imagination maybe you are confusing him with Kenneth Fraizer MRK CEO who is a lawyer...
Read has degrees in chemistry and is a chartered accountant...

Permalink to Comment

17. bingo on May 7, 2014 6:00 PM writes...

How do you think the Pfizer Groton R&D site will fare in all of?

Permalink to Comment

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