Let's Bail Out Pharma Next

Schering-Plough (NYSE: SGP  ) said on Friday that it's cutting 1,000 sales jobs -- that's 20% of its sales reps. Wyeth (NYSE: WYE  ) , Amgen (Nasdaq: AMGN  ) , and Bristol-Myers Squibb (NYSE: BMY  ) have also laid off workers in the not-too-distant past. Maybe it's time for another government bailout.

I'm only kidding, of course. Pharma will be just fine. Schering's cuts weren't unexpected, since the company announced in April that it was planning on cutting part of its workforce as part of a $1.5 billion cost-savings plan.

Many of the jobs are likely coming from redundancies after the acquisition of Akzo Nobel's Organon BioSciences subsidiary. Sales reps can easily add a drug or two in the same category to their arsenal, so there were bound to be some synergies to be gained from the acquisitions. Others receiving pink slips were likely hocking Vytorin and Zetia. The growth of the cholesterol-lowering drug franchise that Schering sells with Merck (NYSE: MRK  ) has slowed after a series of bad clinical trial results.

The good news is that the workers aren't coming from research and development -- at least during this round. Like all pharmaceutical companies, Schering needs to keep pushing drugs through the clinic and discovering new compounds to bring into the clinic. Research and development just isn't a place where drug companies can cut without seeing consequences down the road.

While the cuts are disappointing -- especially for the workers losing their jobs -- the new, leaner Schering should be able to grow the bottom line faster than a bloated one ever would. No government handout required.

More Foolishness on turnaround possibilities:

Let us know what you think in Motley Fool CAPS. Make an outperform or underperform call on these companies; post a pitch about whether you think pharma can turn it around. It's free. It's fun. And it's Foolish.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


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  • Report this Comment On September 22, 2008, at 9:45 PM, Rnookkeeper wrote:

    Hey, I'm an ordinary citizen, not one of the 10% who don't pay taxes. How about bailing me out!

    Raccoonnookkeeper

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