2 Shrinking Biotech Companies

Biotech company Dendreon (Nasdaq: DNDN  ) and French pharma giant Sanofi (NYSE: SNY  ) announced layoffs earlier this week. What do these staff reductions signify for the companies and investors? Let's take a look.

Dendreon's dilemma
On Monday, Dendreon announced that it would cut 145 jobs in the Seattle area. These staff reductions comprise part of a larger layoff plan unveiled earlier this year.

In July, the company stated that it would cut 600 jobs over 12 months. Most of the layoffs will occur in two states -- New Jersey and Washington. These new cuts come on top of a 25% overall staff reduction in 2011.

The reality is that Dendreon had to take some type of action. Sales of the company's main product, Provenge, increased in the first half of 2012 compared to last year, but not enough to avoid further cost reductions.

This second round of layoffs provides mixed news for investors. On the negative side, the reductions serve as a stark reminder of the difficulties that Dendreon faces. Looking on the positive side, the restructuring should help buy the company additional time for Provenge to hopefully gain more momentum.

Dendreon battles against tough competition in the prostate cancer market, though. Johnson & Johnson (NYSE: JNJ  ) appears to be winning physicians with its Zytiga drug. Anew drug from Medivation and Astellas Pharma will also soon enter the market.   

Sanofi's streamlining
The bad news isn't just on this side of the Atlantic. Sanofi announced on Tuesday that it may eliminate as many as 900 jobs in France over the next three years. The company first attempted to cut more than  2,500 jobs, but the French government convinced top executives to scale back its plans.

Of course, the situation with Sanofi is totally different from that of Dendreon. The staff reduction of 900 jobs represents less than 1% of the company's total workforce. Sanofi brings in annual revenue of around $45 billion. Although the company faces loss of patent protection for some key drugs, it has the resources to partner with or acquire other companies to continue its long-term success.

These layoffs reflect streamlining of operations by Sanofi as opposed to an action required for near-term survival. The impact of this move should be negligible from an investor's viewpoint.

Developing pattern?
Do these recent layoffs indicate a developing pattern in the pharmaceutical industry? They might. The June report from global outplacement consultancy Challenger, Gray & Christmas, showed nearly three times the number of planned job cuts by pharma companies compared with the same month last year.

Mergers and acquisitions partially explain the higher numbers of jobs being eliminated. For example, the acquisition of Medicis Pharmaceuticals by Valeant Pharmaceuticals (NYSE: VRX  ) is expected to result in layoffs.

On the other hand, Allergan (NYSE: AGN  ) is bucking the trend. The company recently opened a new research and development center in New Jersey and expects to add several hundred jobs in the coming years.

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Fool contributor Keith Speights owns no shares in the stocks mentioned above. The Motley Fool owns shares of Dendreon and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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