March 28, 2008
Generic competition and the FDA's slowing pace of approval for new drugs are making it tough for pharmaceutical companies to increase revenues. Instead of sitting on their hands, the companies are cutting expenses so earnings can grow faster than revenues.
Wyeth (NYSE: WYE ) is the latest proactive company to cut its expenses. 1,200 U.S. sales reps were reportedly given pink slips this week. The cuts are part of a cost-cutting program announced earlier this year. Wyeth expects to reduce its workforce by 4%-6% by midyear and 10% over the next three years. The most recent cuts represent about 2% of the workforce, so additional job cuts are coming.
A lot of the now-unemployed sales reps were probably pushing Wyeth's heartburn medication, Protonix. The drug is receiving generic competition from Teva Pharmaceuticals (Nasdaq: TEVA ) and Caraco Pharmaceutical Laboratories (AMEX: CPD ) after the companies made at-risk launches of their knockoff versions. Wyeth claims the patent is valid until 2010, but it looks like a court will ultimately decide if Wyeth is due damages from the generic-drug makers or if the competition will remain on the market.
The new leaner Wyeth -- and Amgen (Nasdaq: AMGN ) , Bristol-Myers Squibb (NYSE: BMY ) , and others that have announced cuts -- are looking much healthier in my eyes. There are many people in the industry advocating that pharmaceutical companies have way too many sales reps for the number of doctors that are interested in listening to them. I'd much rather see the companies cut sales reps than R&D costs, which might further hurt those already beleaguered pipelines.
Now if only the industry could figure out how to speed up the FDA.