Zoetis to whack 10 plants as part of cost-cutting scheme

Bill Ackman

Activist investors can be hard on pharmaceutical manufacturing jobs. When they show up on boards, CEOs can get nervous about cutting costs and raising stock prices, and manufacturing sites are often an easy target for those kinds of short-term gains. Animal health leader Zoetis today laid out just such a plan.

Zoetis ($ZTS) announced in its first-quarter earnings release its intent to whack 10 unnamed manufacturing sites as part of a plan to cut hundreds of millions of dollars in the next two years. It said it would sell or close the plants and reduce the number of products it sells by about 5,000. It also said it will reduce the number of operating units from four to two, U.S. and international, to cut administrative costs. In total, the company expects to reduce its workforce by 25%, whacking about 2,500 jobs, Reuters reports.

"The operational efficiency initiative we announced today will result in a company that will generate more profit from a slightly smaller, more focused revenue base," CFO Paul Herendeen said in the release. "We expect to generate cost savings of approximately $300 million in 2017 and to improve our adjusted operating margin from 25% in 2014 to approximately 34% in 2017."

While Zoetis offered no details on which plants it was shedding, Reuters citing a financail filing, pointed out the company has 27 such sites, 13 of which are in the U.S. and four in China. 

Sources tell Bloomberg the plan is in response to pressure from activist investor Bill Ackman to cut costs in an effort to boost its share price. Ackman bought an 8% share in the company in November and convinced Zoetis to allow him to name a couple of board members.

The same kind of scenario recently played out with biotech Amgen ​($AMGN), which last year announced its intent to cut about 15% of its workforce, then upped that a few month later to 20%, about 4,000 workers, after analysts and investors criticized its poor return on R&D outlays. A big part of the cuts have fallen on research and manufacturing sites in Seattle and Bothell, WA, and Boulder and Longmont, CO. The company has said it expects to be able to whittle its manufacturing network down by 25% by turning to new, more efficient manufacturing processes.

- here's the Zoetis earnings release
- read the Bloomberg story 
- more from Reuters 

Special Report: The largest biopharma layoffs of 2014 - Amgen