When Big Pharma starts talking about big buyouts, the sales and marketing departments start chattering about their jobs. Last week's Novartis-plus-GlaxoSmithKline cancer deal is one prime example. Another, bigger one: Pfizer's proposed $100-billion-or-so buyout of AstraZeneca.
Worries about job losses have U.K. officials looking for reassurance from Pfizer ($PFE), but Pfizer isn't biting--at least, not until AstraZeneca ($AZN) agrees to sit down and talk. But government ministers are focused on R&D and scientists, not sales and marketing folks. And as anyone in pharma sales knows, SG&A expenses are often the top brass' first target when integrating two companies.
Novartis ($NVS) wouldn't share any details with us about its cancer marketing plans, citing their proprietary nature. But since that deal was announced last Tuesday, Glaxo ($GSK) won approval for one of its new cancer drugs, and Novartis nabbed an OK for its targeted lung cancer product Zykadia.
New products to tout mean sales reps in the field and marketing campaigns in the hopper. Whether that translates into job security for Glaxo's cancer tribe remains to be seen--the deal won't close till next year, the companies say--but if other hoped-for approvals materialize, their chances are better than they would be otherwise.
Reading the tea leaves on a potential Pfizer-AstraZeneca combo is a murky proposition. But take a look at one stat that's often eyed by analysts and investors: the line item that comprises selling, general and administrative expenses, a.k.a., SG&A costs. As with R&D spending, analysts look not only at the absolute cost but also at SG&A as a percentage of sales. Right now, there's quite a spread between Pfizer's percentage and AstraZeneca's.
Pfizer calls it SI&A--selling, information and administrative--and the company has been bringing the total down year after year. From $15.63 billion in 2007 (32.3% of sales), that expense line grew to $19.5 billion after the merger with Wyeth in 2009; because Wyeth's sales also came into the mix, the percentage-of-sales stat didn't blow up but stayed at around 29%, just about the same as it had been before the deal.
By the end of 2013, Pfizer had shrunk those expenses to $14.4 billion, or about 27.8% of sales. That's quite a drop, in absolute terms, but in addition to job losses and cost cuts in sales and admin, the reduction also included expenses that left the company along with sold-off divisions, such as Capsugel, its capsule-supply business, and Zoetis, the animal health unit spun off last year.
Meanwhile, AstraZeneca's SG&A costs have zigzagged up and down, beginning with $10.9 billion in 2008, when sales amounted to more than $31 million; that puts SG&A at about 33% of sales for that year. In 2011, SG&A hit $11.61 billion on sales of about $33.6 billion--a similar ratio. When the company hit its Seroquel patent cliff, AZ took a big chunk out of 2012 SG&A costs to help compensate, slicing them back to $9.84 billion, on $29.97 billion in sales. Still about the same ratio.
Last year, however, CEO Pascal Soriot decided to plow some money into sales and marketing to help push the drugs he'd identified as growth targets. That includes Brilinta, the clot-fighter, and the diabetes portfolio it now wholly owns, thanks to its buyout of Bristol-Myers Squibb's ($BMY) share last year. SG&A for 2013 hit $12.2 billion, partly on internal increases, partly because of that diabetes deal.
According to AstraZeneca's annual report, that $12-billion-plus amounted to about 47% of sales, which came to $25.7 billion last year. That's almost 20 percentage points higher than Pfizer's number.
Put that together with the fact that AstraZeneca has 29,600 employees in sales and marketing--more than half of its 51,500 total--and eyebrows start to rise. To number crunchers within Pfizer and without, SG&A looks like a fat line item ripe for a squeeze.
Of course, SG&A cuts related to a merger would include overlapping back-office functions and redundant management posts. But if pharma's recent history in sales and marketing is any guide, sales and marketing will bear a disproportionate share, particularly in therapeutic areas where Pfizer is strongest.
Pfizer has already swept out a number of sales positions attached to Lipitor, its now-off-patent statin drug. The product is now part of the company's established products business. Crestor, AstraZeneca's statin, would join that unit, too, Pfizer said this week. Could the remaining CV sales force there handle Crestor too?
And consider Brilinta, AstraZeneca's clot fighter. It meshes right in with Pfizer's warfarin alternative drug, Eliquis, which the company has been working hard to promote. A big chunk of AstraZeneca's new SG&A expenses can be traced to the Brilinta marketing effort. Assuming Brilinta would join the Pfizer unit handling newer CV meds, the Eliquis team might be able to take over much of the Brilinta job.
One field where AZ staffers could be safest is diabetes. Pfizer doesn't have much of a presence in that disease, and the AstraZeneca team has been beating the streets to promote the broad range of drugs that make up AZ's portfolio.
We'll end on a positive note by saying that, if the Pfizer deal goes through, many AstraZeneca sales-and-marketing staffers will survive--and according to an annual survey by MedReps, pharma's sales folks rated Pfizer as the best place to work in Big Pharma. We'd like to put on an invisibility cloak and walk the halls at Pfizer, just to check the reliability of that survey. But somebody's happy at Pfizer, and some AstraZeneca employees may have the chance to find out why.
Special Reports: Top 10 pharma companies by 2013 revenue - Novartis - Pfizer - GSK - AstraZeneca