Out with the old, on with the new

Pfizer’s loss will be the gain of numerous pharma companies and CROs as they look to hire from this talent pool

The new year has kicked off with two kinds of announcements: mergers and plant shut downs. Both are part of global pharma’s survival tool kit: get bigger to compete and shed to stay agile.
Ranked eighth by revenues, Bristol-Myers Squibb (BMS) acquired Celgene, one step down on the rankings. Post the merger, announced on January 3, BMS could climb up at least three-four ranks in this much quoted listing. The second deal on January 9, Eli Lilly’s acquisition of Loxo Oncology, also focused on strengthening the larger company’s presence and pipeline in key portfolios and markets.
On the shedding front, Pfizer announced it was shutting down two of its manufacturing plants in India on January 8, citing “very significant long term loss of product demand, (making) manufacturing at these sites is not viable”. The facilities in Irungattukottai, Chennai in Tamil Nadu and Aurangabad, Maharashtra, are estimated to have 1700 employees.

Across the globe, almost on the same day, AstraZeneca announced it would be shutting down two facilities in Colorado to consolidate “the biologics manufacturing network in one large-scale drug substance facility” in its Maryland facility, to improve efficiency in company’s global biologics supply chain, according to a company spokesperson.

The decommissioning of pharma plants signals the end of one era, but also the beginning of another. For both the company as well as employees. The fact that Pfizer is going ahead with expansion of its greenfield facility at Vizag underlines the fact that India will continue to be part of its global manufacturing supply chain. In fact an email to employees dated January 8 clarified that even though both sites will “immediately cease manufacturing with the intention to exit both sites as soon as possible in 2019”, the other manufacturing sites in Goa, Vizag and their joint venture site Zydus Hospira Oncology Pvt Ltd (ZHOPL) in Ahmedabad.

And for the employees, Pfizer’s loss will be the gain of numerous pharma companies and CROs as they look to hire from this talent pool. Job openings are being posted on WhatsApp groups, asking Pfizer personnel to email their resumes. Veterans of similar shut downs in the past narrate how they took the opportunity to strike out on their own. Many others kept an open mind and compromised on salaries to work in smaller companies in different job profiles.

Pfizer seems to be willing to cushion the bump with a financial package, possibly similar to the package offered to staff at its Navi Mumbai facility which was shut in 2015. The January 8 email also specified that letters to employees with details of this package would be couriered to them by January 14, with the following week reserved for group sessions to provide additional information about the scheme. Employees would be allowed to pack up their personal belongings during the same week. Initial reports are that the compensation is very attractive, with a manager with one year experience at Pfizer slated to get ₹20 lakhs. Ranging from a minimum ₹ 20-25 lakhs, to ₹ 70-80 lakhs, the compensation package reportedly includes a fixed component of Rs 12 lakhs to all affected employees, three months of notice pay (of the gross component), an additional 3.5 months gross salary per year of service completed, and gratuity up to retirement. Added to these components, are fixed special incentives, statutory bonus. All these calculations are inclusive of a 15 per cent increment for this year 2019. There is also an early bird incentive of ₹ 7 lakhs. Latest reports are that most employees are deciding to accept these terms and move on.

As all mergers include physical assets, the acquiring company needs to conduct a very in depth analysis of the assets being acquired. The injectables facilities came to Pfizer through its acquisition of Hospira in 2015, which in turn acquired them from Orchid Pharma in 2012. Reflecting the difficulties of the injectables business, the Pfizer/Hospira plants across geographies have been falling foul of regulators for quite some time. A US FDA inspection of the Pfizer/Hospira facility in Kansas, over late July – early August last year, resulted in seven repeat 483 observations dating back to 2012, according to agency and reports filed in December. The Chennai Pfizer/Hospira facility received warning letters and 483 observations in 2011 and in 2013. Pfizer had temporarily shut down the Chennai plant in 2016 to rectify these issues, but received 11 observations from the US FDA after inspections last March-April. The results at the Kansas facility which were made public in December couldn’t have come at a worse time. Clearly, technology upgrades to physical infrastructure built over the decades will not stand up to 21^st century laws and regulators. Out with the old (technology), on with the new will have to be the mantra for this sector.

(As this is a developing story, this is an updated version of the editorial in the print issue dated Jan 16-31, 2019)