Roche announces plans to restructure and cut 6 percent of workforce over two years

The Swiss pharma giant will cut some 4,800 jobs worldwide from its current workforce of around 82,000 as part of a plan to save a little over $2.4 billion in annual costs from 2012 onward

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BASEL, Switzerland—Aiming for annual cost savings of 2.4 billion Swiss francs, which is around $2.42 billion, from 2012 onward, Roche Holding AG has set out restructuring plans that include cutting nearly 5,000 jobs over the next two years.

The job cuts are expected to be 6 percent of the roughly 82,000-strong workforce worldwide, or 4,800 jobs, with the largest cuts to be felt in sales, marketing and manufacturing. Even ahead of the annual savings for 2012 and beyond, Roche expects to $1.8 billion in savings next year. Also, the company is reportedly looking for buyers who might want to acquire some of its sites in the United States.

Although 4,800 jobs are on the chopping block, 6,300 jobs will be affected overall, as Roche plans to transfer 800 jobs internally and roughly another 700 to third parties. Reductions in staff will be felt most keenly in the United States, to the tune of just over 3,500 jobs. Of the total 4,800 to be cut globally, a little over 2,600 are in sales and marketing, largely because of recent setbacks related to taspoglutide, Roche reports.

Pricing pressure is being blamed, with Roche CEO Severin Schwan pointing the finger both at government efforts in Europe to limit healthcare spending and the effects of healthcare reform legislation in the United States, which increased the number of hospitals serving low-income patients who would be eligible for reduced medication prices as well as boosted discounts to Medicaid.

"We have seen a markedly increased price pressure in the U.S. and in Europe," Schwan says. "The price pressure was stronger than we had originally anticipated."

Roche's plans seem to be going over well, with shares of the company up slightly after the news, and DZ Bank analyst Thomas Maul calling the $2.4 billion in annual savings "a positive surprise" since many had expected Roche to announce savings of 2 billion instead, and he added: "Roche pessimists had not even expected the company to achieve 2 billion francs in savings. We might see double-digit upside revisions of earnings estimates (and) a clear improvement of sentiment."

"The cuts are quite deep and the market should be pleased that the company has taken a serious look in the mirror and did what was required," according to Carri Duncan, an analyst at Macquarie Group in Zurich.

Employment will be cut—and perhaps research and early development operations ceased entirely—in such locations as Nutley, N.J.; Madison, Wisconsin; Graz, Austria; Kulmbach, Germany; and Burgdorf, Switzerland. U.S. sites for which Roche is currently looking for buyers are in Florence, S.C., and Boulder, Colo.

Looking forward for Roche, Schwan has also expressed a desire to increase research and development productivity, with an eye toward more external partnerships and licensing deals, as well as perhaps small and mid-size acquisition ranging from the hundreds of millions of dollars to perhaps a few billion dollars.

Currently, Roche has 31 programs in Phase III trials and 12 new molecular entities in its late-stage pipeline, and promising candidates include a BRAF inhibitor to treat skin cancer, MetMab for lung cancer and lebrikizumab for asthma. Although Schwan has said Roche will cease some preclinical research programs "across the board," including some in oncology, the company will not abandon any of its current therapeutic areas, which focus on cancer, virology, inflammation, metabolism and central nervous system disorders.

Schwan says Roche will discontinue research into the emerging area of RNA interference, and may either spin off those operations or seek partners for them—and it is this decision that is primarily leading to the job losses in Madison, Nutley and Kulmbach.

Roche reiterated its forecast for this year, saying earnings per share, which excludes exceptional items and amortization and impairment of intangible assets, will probably increase at a double-digit pace at constant exchange rates.

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