Schering to halve plant numbers to boost profitability

Related tags Schering Investment

German pharmaceutical firm Schering is planning to close down half
its production facilities in the coming years as it strives to
boost profitability and growth to a level that will beat its peers
in the industry, reports Phil Taylor.

Schering's chief financial officer, Joerg Spiekerkoetter, said in a conference call yesterday that a reduction in the number of pharmaceutical production sites to 12 from 24 was one of a series of measures designed to improve profitability at the company through 2006 and beyond.

This follows a reduction in R&D expenditure from 19.1 per cent of sales in 2004 to 18.7 per cent this year, helped by the closedown of process development at the firm's Mobara facility in Japan, a reduction in research and process development at Turku, Finland, and the termination of neurology research in Berlin. R&D spend is expected to shrink further to 18 per cent of sales in 2006.

The money saved from this effort will be invested in the acquisition of new products and potentially even entire businesses to bolster Schering's product portfolio in its core areas of hormonal therapies, cancer drugs, imaging agents and specialised medicines.

The effort is part of a restructuring effort at Schering, dubbed FOCUS, which has already seen the firm divest its dermatology and Jenapharm therapeutics businesses and pull out of R&D in the areas of central nervous system (CNS) and cardiovascular drugs.

This programme has already resulted in a steady improvement in operating margin, from 15.5 per cent in 2004 to an expected 16 per cent this year and will rise to 18 per cent in 2006, said Schering's chairman Hubertus Erlen. In the same year, sales will come in at €5.5 billion, down on the company's earlier forecasts of €5.8 billion.

But this refocusing and a solid product pipeline in its core areas would allow Schering to enter a phase of solid growth in the coming years at a time when its peers in the pharmaceutical industry would see growth hampered by a less forgiving operating environment, particularly with regard to regulatory oversight.

Among the products highlighted in the conference call were the oral contraceptives Angeliq and Yaz (both based on ethinyl estradiol and drospirenone), which could be approved in the important US market by year-end, as well as a new imaging agent (Vasovist) and colorectal cancer drug (PTK/ZK).

Plant closures

Three of Schering's 24 sites have already been divested - Mobara, Nanjing and Tikkakoski - and the sale process for six others has started, according to Spiekerkoetter. Those scheduled for closedown include Lye-les-Linnoy in France, Alcala in Spain, Sakura and Osaka in Japan, Bedford in the US, two South American facilities (in Bogota and Buenos Aires), Jakarta in Indonesia and Orizaba in Mexico.

The resulting manufacturing footprint will be truncated to three plants in the US, six in Europe, two in Asia and one in South America.

Spiekerkoetter also noted that Schering has completed 1,800 out of its planned 2,000 staff cuts, which along with other cost-saving efforts are designed to save at least €105m in annual saving through 2006.

Related topics Markets & Regulations

Related news

Show more