It was a familiar story in 2007 for the world’s major pharmaceutical companies. Patent expirations, a decline in new product introductions, and regulatory and cost hurdles were the name of the game. Following in the steps of Merck and Pfizer (see IBO 4/15/06, 2/15/07), a number of the large drug companies announced major cost cutting initiatives and reorganizations last year, with downsizing, streamlining, outsourcing, and increased investment in China and India as key components. One of the highest profile changes for so-called big pharma has been the announcements of massive layoffs (see table at bottom of page). Although exact details regarding the job cuts were not available, in general, many of the employment reductions targeted manufacturing, business support, information technology (IT), administrative functions and, in some cases, R&D. R&D cuts at Bayer Schering Pharma and Novartis included the closure of research facilities. Bayer has concentrated R&D at sites in Berlin and Wuppertal, Germany, and Berkeley, California, following the 2007 closure of R&D operations in West Haven, Connecticut, and Richmond, California. Novartis plans to close the 240-person Novartis Institute for BioMedical Research in Vienna, Austria, and the Tsukuba Research Institute in Japan, which has a staff of 123. In March 2007, the Nikei reported that GSK would close its Japanese research facility. As with other major pharmaceutical companies, a critical component of Novartis’s reorganization effort, announced in December 2007, is streamlining. The company’s “Forward Initiative” is designed to remove layers of management, decentralize decision making and implement cross-functional integration. These changes include sharpening the company’s development focus, new sourcing initiatives and standardizing technical operations. And to further emphasize biologicals, Novartis will form a dedicated Biologics unit. For the world’s largest pharmaceutical companies, new outsourcing initiatives are also underway, spanning manufacturing, business services and R&D. AstraZeneca plans to outsource the entire production of its active pharmaceutical ingredients (APIs) within five years, according to Chemical Engineering & News. The company currently manufactures 85% of its APIs. GlaxoSmithKline (GSK) already outsources 41% of API manufacturing. At an investor conference last fall, Pfizer announced it is considering increasing the percentage of manufacturing it outsources from 15% to 30%. Lily already outsources 20% of its manufacturing, according to The Indianapolis Star. Outsourcing of administration and business process functions has also accelerated. Last year, Tata Consulting Services signed agreements with GSK to handle clinical data management and submissions support and with Roche to provide clinical data management, programming and support for biostatistics and drug safety. Merck recently expanded its two-year-old outsourcing agreement with Cognizant for IT, infrastructure management and business processes. Eli Lilly currently outsources 40% of its IT work. For some companies, R&D is also being increasingly outsourced. A 2007 survey by Contract Pharma found that 30% of respondents planned to increased their spending on outsourcing by 10% or more this year. Among survey participants, 31% of big pharma planned to increase spending on outsourcing by 10% or more. “Pressures on large pharmaceutical and biotech companies along with the emergence of reputable and financially stable service providers has made outsourcing more acceptable,” wrote Goldman Sachs analyst Alejandro Alvarez in December, as reported by the Associated Press. “With less than 25% of all development work outsourced today, we believe the industry remains in the early stages of this secular change.” He estimated that the contract research organization (CRO) market will increase from $16.3 billion in 2006 to $29.4 billion by 2011. PharmaAsia reported that Pfizer plans to increase its outsourcing of R&D, including increasing its percentage of outsourced drug safety studies, from 5% to two-thirds. Eli Lilly plans to outsource as much as 50% of its R&D work by 2010. Partnerships with outside companies, particularly biotechnology companies, and other organizations has been another form of outsourcing large drug companies have long pursued. Drug makers are now further capitalizing on that model by entering into new types of partnerships. Pfizer and the Washington University School of Medicine announced earlier this year a five-year, $25 million collaboration to conduct basic research on immuno-inflammatory disorders, and research to be conducted at both parties’ laboratories with an emphasis on equal input by both parties, unlike previous such partnerships. Under a jointly funded three-year program, GSK and the UK’s Medical Research Council will work together on genetic association studies for the identification of new therapeutic targets and biomarkers for the treatment of depression and obesity. Although the majority of drug R&D work remains in the US and Europe, the need to reduce R&D costs and to serve growing markets have led major drug companies to increase investments in Asia. Eli Lilly stated it will spend $100 million in China over five years for drug research. GSK will spend $100 million to fund a one thousand-person neuroscience research facility in Shanghai, China, this year. In October 2007, Roche opened its Chinese Pharma Development Center in Shanghai for clinical development. Also last year, Sanofi-Aventis opened its first Asian R&D center in Goa, India. Among the top 10 drug companies that provided information about their 2008 R&D growth rates, most expect R&D expenditures to hold steady or decline compared to 2007. Merck expects its 2008 R&D expenditures, excluding joint ventures, to be between $4.7 million and $4.9 million, the same as or slightly below 2007. Wyeth forecasts flat R&D spending growth, and Sanofi Aventis expects no “significant rise” in its 2008 R&D spending. Pfizer forecasts its R&D spending to decline at least 6% to between $7.3 billion and $7.6 billion. However, Eli Lilly expects R&D spending to be up in the high single to low double digits.