The immediate catalyst for job losses at Pfizer was the scrapping in December of a new cholesterol drug called torcetrapib, writes Arthur Beesley, Senior Business Correspondent
Pfizer's move to cut more than 500 jobs from its Cork operations shows that workers in even the most advanced industries are not immune from the inexorable and unforgiving forces that determine success or failure in international business.
In that context, it matters not a whit that Pfizer can take in profits of $12 billion (€9.2 billion) in a single year and make sales of $50 billion. Such scale only intensifies pressure on the group to get its business right. Unfortunately for Pfizer, things have gone badly wrong in recent times.
The immediate catalyst for the job losses was the scrapping in early December of a new cholesterol drug called torcetrapib. In large-scale clinical trials, this drug was found to increase the risk of death.
Pfizer had ploughed some $800 million into the development of torcetrapib, which it considered a potential blockbuster with sales of $15 billion possible every year. A single e-mail from the US Food and Drug Administration was enough to cancel the entire effort.
As investors took fright, the demise of torcetrapib prompted the loss of almost 11 per cent in the value of Pfizer shares as investors took fright.
The group's hopes for torcetrapib were all the greater because the patents on its best-selling cholesterol drug lipitor start to run out in 2010. The makers of generic versions of lipitor will be able to flood the market with their own products, at great cost to Pfizer's own revenues from the drug. In addition, torcetrapib was designed to be used in conjunction with lipitor.
This unhappy confluence now has very serious consequences for the group's unit in Cork. Not only is Cork a big centre for lipitor production, but the operation was also to produce 40 per cent of all torcetrapib supplies when it came to market. No longer.
At a global level, Pfizer responded within weeks with a plan to cut its global workforce by 7,800. Combined with a previous plan to reduce the headcount by more than 2,000, the initiative would reduce its overall workforce by some 10 per cent. It also tied in with a 2003 plan to reduce the number of Pfizer manufacturing plants by half.
Thus the omens were bad when Pfizer vice-president Terry Lambe, himself a Kerryman, requested a meeting on Tuesday night with Minister for Enterprise, Trade and Employment Micheál Martin.
Only a week after Motorola declared its intention to let go of 350 workers in Cork, Martin heard from Lambe that Pfizer wants to make 545 staff redundant at its plants in Ringaskiddy, Little Island and Loughbeg.
No Minister wants to hear such news, particularly from his own home patch. In an election year, the blow is all the worse. For the staff in question, many of whom have given long years of loyal service of Pfizer, the news casts huge uncertainty over their livelihood.
For many years, IDA Ireland has repeated the mantra that Ireland must "move up the value chain" if it is to escape the ravages of deep cutbacks in basic manufacturing and its relentless flight to cheaper economies.
What the Pfizer case illustrates is that nothing can be taken for granted when it comes to jobs in big business, even at the very top of the value chain.
This point seems all the more important in a scenario in which 40,000 people are employed here in medical technology and pharmaceutical companies. With pharmaceutical exports reaching €32.3 billion in 2005 and 13 of the top 15 pharmaceutical groups already here, Ireland is heavily dependent on the sector.
Thanks in large part to the efforts of IDA Ireland, six of the world's top 10 drugs are made in Ireland. But for all the benefits that flow from big investments by groups such as Schering Plough, Centocor and Amgen, the scale of the industry only increases its vulnerability to patent expiry and research setbacks.
Not only is Pfizer's lipitor drug coming to the end of its patent, another Cork-made drug called norvasc, for blood pressure, will come off patent in September.
This is an industry-wide phenomenon. The drug giant AstraZeneca said only six days ago that it will cut 3,000 jobs, representing 4.6 per cent of its workforce. Again, competition from generic sales was a big factor in that decision.
For all that, the Government probably has no alternative but to encourage more investment in the sector. Indeed, the State routinely provides hundreds of millions of euro of public money in grant aid to encourage such companies to set up in business here.
Pfizer, for example, is understood to have received some €200 million in grant aid last year in respect of new investments in Dún Laoghaire and Cork. Because those investments are going ahead, none of that money will be returned after the latest job losses.
Yet there is logic to the Government strategy. For all the talk about the high cost of doing business in Ireland, cost was not the prime factor in Pfizer's decision yesterday. "Cost is a factor, but it's certainly not the overriding one," said the group's spokeswoman. She said there may have been job losses in Cork even without the torcetrapib setback, but not on the same scale.
Indeed, Pfizer is cutting jobs in Puerto Rico, where costs are considerably less than in Cork. Still, cost remains a big concern here, with basic manufacturing shedding jobs almost weekly. In the drive to attract advanced manufacturing, costs cannot be ignored.
"Between 2000 and 2006, Ireland experienced a significant loss of international price competitiveness. This was caused by a combination of higher price inflation in Ireland and an appreciation of the euro," said the National Competitiveness Council this week.
Such factors do not go unnoticed at Pfizer and its high-end peers, even if Ireland will continue to produce 33 per cent of Pfizer's overall drug supply. That business is done here because it is highly profitable to do so. It's as simple as that.
Mr Lambe said the decision was not easy "because of its potential impact on colleagues . . . who have contributed significantly to the company's success".
But there is little room for emotion in these matters. Among the plants now scheduled for closure is Pfizer's first one in Brooklyn, where 600 people are set to lose their jobs.
When former Pfizer chief Hank McKinnell was forced into retirement last year, he received a package worth $180 million (€138 million). Workers who lose their jobs in Cork and elsewhere can expect an awful lot less.