New Prescription

A Bitter Pill

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The drugs firm has to take its medicine.
  • Why it matters

    Why it matters

    The family-owned pharmaceutical giant has avoided the kinds of belt-tightening that other drug producers have faced, but the combination of dwindling sales and expiring patents has the company looking for ways to save money until new drugs produce substantial revenues.

  • Facts

    Facts

    • Boehringer Ingelheim has been virtually alone among peers such as Bayer, Merck, Pfizer, Roche and Novartis International, which have slashed tens of thousands of jobs to remain competitive.
    • The company overestimated sales of newer products and underestimated the costs of production and marketing.
    • The pharmaceutical firm is not in a dire situation as it sits on cash reserves of €6 billion, or $7.7 billion.
  • Audio

    Audio

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The management and works councils of the pharmaceutical giant Boehringer Ingelheim in Rhineland-Palatinate are coping with unfamiliar events these days.

Germany’s second-largest producer of pharmaceuticals faces a painful round of cuts that could mean the loss of up to a thousand jobs in Germany. After two decades of expansion, such a cutback could be a shock to the system for the harmonious family business, even though such cost-cutting measures are now routine in the drug industry.

Practically all major drug producers including the German company Bayer, U.S.-based Merck and Roche and Novartis International in Switzerland have undertaken more or less severe efficiency programs in recent years. Merck and U.S.-based Pfizer together have slashed tens of thousands of jobs to compensate for dwindling sales and the expiration of patents.

“Even research-oriented drug companies cannot avoid being hurt during long-term cyclic changes.”

Siegfried Hofmann

Compared to that corporate chaos, Boehringer Ingelheim was an island of bliss, weathering the industry-wide upheavals unscathed while continuing to grow. Sales have doubled since 2010. But now the company must face the harsh reality of the pharmaceutical world, which is that even research-oriented drug companies cannot avoid being hurt during long-term cyclic changes. Newly developed drugs generally start life unprofitably, but then develop and grow to reach maximum sales shortly before the patent expires. After that, the business collapses as generic competition takes the field. Every 10 to 15 years, pharmaceutical firms are forced to replace a considerable amount of their products. And the greater the success of the drug, the greater the need for successful replacements.

Boehringer Ingelheim has managed these transitions comparatively well until now. However, the latest developments suggest the company was lulled into a false sense of security. Management overestimated the sales potential of newly-developed products and underestimated the risks in production and marketing. The company is now in the uncomfortable position of having to ramp up quality assurance at the same time sales are lagging behind earlier projections.

As is true with most pharmaceutical companies, it would be an exaggeration to suggest Boehringer Ingelheim is in the grip of a real crisis. The pipeline looks to be loaded with a series of new cancer, diabetes and asthma drugs while the company’s coffers are filled to overflowing with a net cash position of €6 billion or $7.7 billion.

In this respect, the wakeup call comes at a good time and will help steer the company back onto the road to success.  

The author is editor in the companies and markets department of Handelsblatt. He can be reached at hofmann@handelsblatt.com 

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