Hard medicine

Drug Firm's Sales Causing Headaches

boehringer dpa
The conveyor belt of new Boehringer drugs is faltering.
  • Why it matters

    Why it matters

    Boehringer has been caught off guard by a sudden dip in sales. It’s now taking action to shore up losses and labor representatives fear up to 1,000 jobs in Germany alone could go.

  • Facts

    Facts

    • In the first half of 2014, Boehringer sales declined 3 percent to €6.5 billion ($8.37 billion).
    • The company has taken on 900 new staff in Germany this year.
    • A new restructuring program aims to cut costs by 15 percent.
  • Audio

    Audio

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For more than 15 years, the pharmaceutical company Boehringer Ingelheim grew year after year. Sales surpassed the overall market, production increased steadily and staff numbers grew. And most new drugs the company developed won regulatory approval without too much difficulty.

Over the past two years, however, Germany’s second largest drug maker has endured a series of difficulties that caused sales to plunge – and now the family-owned company is reducing costs in a sudden course correction. Labor representatives fear up to 1,000 jobs in Germany alone could be lost.

That would be a complete turnaround for Boehringer. This year alone, the company has increased staff in Germany by more than 900 employees, or by about 7 percent.

The current layoff fears were sparked when the pharmaceutical giant announced a cost-cutting program in August that aims to cut costs by 15 percent. The company said it needs to free up money to “continue to invest vigorously in organic and sustainable growth,” a formula that Andreas Barner, the company’s chief executive, uses to justify the cuts.

Boehringer has not confirmed how many employees would lose their jobs and said details would be worked out by the end of the year.

Boehringer has not confirmed how many employees would lose their jobs and said details would be worked out by the end of the year.

Big restructuring programs have become commonplace in the pharmaceutical industry. Bayer and Merck each laid off more than 1,000 employees in recent years in so-called efficiency programs. However, the situation is new to Boehringer, which has enjoyed years of steady growth.

The main trigger for the sudden course correction was an unexpected drop in sales. The firm’s strategy could accommodate a slight dent in growth at best. But the fall in sales this year was steeper than expected. In the first half of 2014, sales declined 3 percent to €6.5 billion ($8.37 billion). Boehringer now expects a similar fall in revenue for the whole year.

Several factors were to blame – some expected, some not. For instance, the company could see losses coming when its patent for the blood pressure drug Micardis expired in January of this year. In 2013, the drug generated €1.4 billion in sales. But the company seemed caught off guard by growing competition to its respiratory drug Spiriva. Boehringer was forced to grant bigger discounts to U.S. health insurers to prevail against products by rivals GlaxoSmithKline and Novartis.

In addition, sales of the blood thinner Pradaxa have been disappointing. The drug, which is used to treat thrombosis and prevent strokes, had caused a wave of litigation in the United States after many patients experienced heavy bleeding.

The company reached a settlement with U.S. plaintiffs in May for €470 million. Regulatory bodies have repeatedly confirmed the drug’s safety and benefits, but the lawsuits severely stifled sales. Compared to Bayer’s rival product, Xarelto, Boehringer lost considerable market share.

The drug maker’s exit from research on hepatitis contributed to a further drop in midyear revenue. A few months ago, Boehringer stopped all related projects, including a product ready for approval, after it became clear they wouldn’t be able to compete with rival drugs. In Germany, the pharmaceutical company also passed on the launch of a new diabetes drug, Linagliptin, because it didn’t expect big enough profits.

A series of problems in production aggravated the situation. Boehringer had to close a U.S. plant in Bedford, Ohio, following quality issues. The U.S. Food and Drug Administration also questioned quality assurance in the main plant in Ingelheim, Germany. This forced the company to reorganize the production division and hire more employees. It also delayed approval of a new asthma drug in the United States.

Overall, Boehringer’s research and development is still on track. In recent months, the company gained approval for a new cancer medication and diabetes drug in the United States. In the next two years, it plans to launch 10 new products. So the course for a new phase of growth seems to be set – if something unexpected doesn’t get in the way.

Siegfried Hofmann is Handelsblatt’s chemical and pharmaceutical industries correspondent. He has reported for many years from Frankfurt. To contact the author: hofmann@handelsblatt.com

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