In the calm after yesterday's
Pfizer-AstraZeneca deal storm, it's time to survey the potential fallout.
Pfizer's aggressive strategy for avoiding taxes, totted up by The Wall
Street Journal, politely thumped by the Financial Times and skewered
by In the Pipeline. Fears for the U.K. science community, articulated by
any number of U.K. newspapers.
We were intrigued by Pfizer
CFO Frank D'Amelio's cost-cutting promises Monday. D'Amelio said Pfizer had
promised to squeeze out $4 billion in costs after buying Wyeth in 2009--and then beat that number handily. Much of that squeeze came in
the form of job cuts, so we totted up some numbers ourselves, with the help of
Securities and Exchange Commission filings.
At the end of 2008, Pfizer had
81,800 employees. Wyeth had 47,426. Total: 129,226.
On Dec. 31, 2009, Pfizer's
post-merger headcount was 116,500. Of that number, Pfizer's legacy payroll
amounted to more than 74,000, while Wyeth accounted for more than 42,000, the
company said in its annual filing.
As the two companies announced
that merger, they set a target of about 20,000 job cuts. And Pfizer's employee
numbers slid yearly after that, by 6,000 or 7,000 or 9,000 at a time. By the
end of 2013, Pfizer's work force had shrunk to 77,700.
Difference between Pfizer and
Wyeth's year-end-2008 total? More than 51,000 employees.
Of course, Pfizer wasn't the
only Big Pharma company cutting jobs during that period. Every big-name
drugmaker and many small ones slashed their payrolls by thousands. Let's take a
look at AstraZeneca, Pfizer's current object of desire. From about 65,000 at
the end of 2008, AstraZeneca's work force shrank to 51,500 at the end of 2013.
A difference of 13,500.
But AstraZeneca didn't do a
megamerger during that time frame. So let's check out another company that did:
Merck. Before Merck bought Schering-Plough in 2009, it
counted 55,200 employees on its payroll. Schering had 51,000. That's a total of
106,200.
And at the end of 2009, the
company said that the combined employee total was about 100,000. So far, about
6,000 down.
When the Merck-Schering deal hit
the news, the anticipated job-cutting total was 16,000. Merck's employment
numbers did indeed decline, and rather quickly. By the end of 2013, the company
had 76,000 workers, or thereabouts, the company said in its annual report.
The difference between the
2008 Merck-plus-Schering total? 24,000.
So, when D'Amelio said Pfizer
was "rather good" at cutting costs out of integrated companies, he
wasn't kidding. From the end of 2008, just before the Wy-Pfi merger, to the end
of last year, the combined workforce shrank by almost 40%.
By comparison, the
Merck-Schering head count dropped by about 23% from 2008 to 2013. And the
merger-free AstraZeneca cut 21% out of its employee base. Even if you add in
Merck's latest 8,500-job-cuts announcement, Pfizer is way ahead of both.
And according to ISI Group
analyst Mark Schoenebaum, Pfizer's cuts after than 2009 merger took about 70%
out of Wyeth's cost base. No wonder the U.K. economic boosters are worried. And
no wonder Derek Lowe at In The Pipeline is, shall we say, skeptical.
With an AZ deal, Pfizer would be "ripping up yet another large patch of
the drug industry" to keep itself chugging along, causing "vast
disruption and loss of productivity along the way," Lowe writes.
Of course, many analysts and
investors take another view: Shrinking the work force improves productivity,
rather than hurting it. Slashing tax payments by billions? Even better; who
wouldn't want to do that? And if Read can cut those costs, parcel out
AstraZeneca's drugs and R&D to his three new operating divisions--and then
sell off one or more of them--then that's a triple whammy.