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Sour pill

November 19, 2010

Thousands of jobs are on the cutting block at German drug giant Bayer as part of a cost-cutting program aimed at offsetting falling revenues and rising price pressure.

Bayer factory in Leverkusen
Bayer plans to cut 1,700 jobs across GermanyImage: picture-alliance/dpa

On Thursday, German pharmaceuticals and chemicals conglomerate Bayer announced plans to lower costs by 800 million euros ($1.09 billion) a year from 2013 onward by slashing 4,500 jobs in high-labor-cost markets as one of several cost-cutting measures. Of the job cuts, 1,700 will be in Germany.

The Leverkusen-based producer aims to invest about half of the program's savings in new drug and crop chemical research and in expansion in emerging countries, where it plans to create some 2,500 new jobs.

Falling revenue, rising competition

Bayer is the latest big drug company to launch a restructuring program. The move comes in response to falling revenue caused by generic drug competition, rising development costs and price pressure from health-care reforms imposed by indebted governments.

Bundling existing resources and streamlining structures is "the only way," said Bayer chief executive Marijn Dekkers said in a statement, for the company to be able to continue investing in its expansion, particularly in Asia, and to create new innovative products.

Bayer CEO Marijn Dekkers
Bayer CEO Marijn Dekkers is prescribing some bitter medicine to his employeesImage: dapd

Earlier in the week, Swiss drug rivals Roche Holding and Novartis launched their own cost-cutting programs, including sweeping job cuts to secure long-term profitability.

On Wednesday, Moody's Investors Service reiterated a negative outlook on the pharmaceutical sector, citing looming patent expirations and government health-care reforms - all of which will impact drug makers' profitability.

German government action

Just last week Germany's lower house of parliament, the Bundestag, approved rules to curb the power of pharmaceutical companies to set prices in the country, Europe's largest pharmaceutical market. The reform, if approved later this month by the upper house of parliament, the Bundesrat, could cost the industry around 2 billion euros a year.

Bayer, famous for its aspirin but also a producer of pesticides, plastics and pharmaceuticals, currently employs some 108,700 people worldwide.

Author: John Blau
Editor: Cyrus Farivar