Roche Fully Outlines Restructuring Programme

Key Drivers

Swiss pharmaceutical major Roche is set to implement a restructuring programme between 2011 and 2012. According to the company, the main driving force behind the planned cost-cutting effort is the need to respond to the increasingly challenging market environment, which in turn requires that efficiency and productivity gains are made. Like other pharmaceutical companies, Roche faces challenges from the negative effects of the healthcare reform process in the United States, pricing and reimbursement related challenges in Europe, and complexities surrounding the approval of new drugs. The main aim of the programme is essentially to improve Roche's ability to adapt and compete in the new market environment, and turn channel investments into avenues through which it can recoup maximum gains for its customers, and therefore shareholders.

Main Crux of Operational Excellence—Job Cuts

As with previous restructuring efforts, Roche is planning to achieve planned savings via job cuts. To this end, Roche will eliminate 6% of its current 82,000 strong workforce, which means that 4,800 positions worldwide will be axed. An additional 800 jobs will be transferred internally and 700 externally, bringing the total number of affected positions to 6,300. The pharmaceuticals business will be the worst hit, and within this most job losses will be within sales, marketing, and manufacturing. A total of 2,650 positions will be axed within sales and marketing and 1,350 in manufacturing, with planned closures of two U.S. sites, in Florence, South Carolina, and Boulder, Colorado. Another 800 jobs will go in product development, and 600 jobs will go within research and development due to the termination of RNA interference research.

The diagnostics division will also suffer some losses, with three sites being affected. The unit's site in Austria will be shut and some research activities (insulin pumps) at the Burgdorf (Switzerland) site will be transferred to Mannheim (Germany). Meanwhile, diagnostics chemical manufacturing and analytical services at Mannheim will in turn be transferred to the Penzberg site, also in Germany.

Pipeline Update

Roche has also provided a quick snapshot of its current pipeline priorities. These include Phase II BRAF inhibitor RG7204 (PLX4032) in the treatment of advanced melanoma (see Switzerland: 5 November 2010: Roche Reports Positive Results for Phase II Melanoma Drug), phase III trastuzumab-DM1 (T-DMI) in advanced HER2-positive breast cancer (see Switzerland: 8 July 2010: Roche Files Breast Cancer Drug Trastuzumab-DM1 for Approval in U.S.), pertuzumab also in HER2-positive breast cancer and phase II Metmab in lung cancer. Beyond oncology, other key drugs highlighted by Roche include phase II lebrikizumab for asthma and a phase II RG7128 for hepatitis.

Outlook and Implications

In addition to macro factors such as healthcare reform in the United States, pricing reform in Europe, and regulatory hurdles, there are also internal pressures which have forced the hand of the Swiss major into making these drastic cuts. These internal pressures are mostly related to a string of clinical setbacks for Roche's single most important drug, Avastin (bevacizumab). Over the last year, Avastin has suffered setbacks in colon cancer, stomach cancer, prostate cancer, and diffuse large B-cell lymphoma. Furthermore, its current regulatory approval for breast cancer still hangs in the balance following uncertainty over when the U.S. FDA will make a final decision on the future of the drug in this indication, in response to the oncology drug advisory committee's recommendation that the first-line, advanced, HER2-negative breast cancer indication for Avastin should be revoked. Similarly, the drug faces scrutiny in Europe, and the European Medicines Agency is currently reviewing the breast cancer approval for Avastin and paclitaxel or docetaxel combination therapy (see United States: 23 September 2010: Avastin's Clinical Setbacks Persist, FDA Delays Final Decision on Breast Cancer Indication and 28 September 2010: EMA to Review Avastin in Breast Cancer). The future of another drug—type 2 diabetes drug glucagon-like peptide-1 analogue taspoglutide—hangs in the balance after concerns over related hypersensitivity reactions linked to its use in late-stage trials (see Switzerland: 13 September 2010: Roche's Taspoglutide Faces Further Woes).

Although compared to other big pharmaceutical companies Roche faces comparatively low levels of imminent generic competition to its key revenue earners, this competitive advantage will evolve as the years roll by and this restructuring programme is therefore timely, as it will enable the company to better prepare for the unavoidable challenges ahead. Roche has said that it will therefore continue to focus on innovation as it ploughs ahead with these structural changes. As such, its strategic focus will not change much. In terms of the expected impact of the programme, Roche expects to generate savings of 1.8 billion Swiss francs (US$1.83 billion) in 2011, with estimated savings of 2.4 billion francs from 2012 and beyond.