Close examination of the pharmaceutical industry at present reveals a fairly troubled patient. The symptoms have gradually been deteriorating; drug development costs are soaring, R&D pipelines have yielded limited returns resulting in a steady drop in the number of product launches, and generic competition has intensified. At the same time, patent expiries have hit hard, with more pain to follow soon. In addition, the global healthcare market has shifted, with emerging stakeholders – most notably patients and payers – assuming greater importance and forcing pharma to take a different approach. With global healthcare budgets under the microscope, pharma is under intolerable pressure to reduce the cost of its medicines.

Faced with such a bleak diagnosis, pharma is restructuring. More specifically, in recognition of the suggestion that bigger is not necessarily better, pharma is downsizing. At the start of 2007, the world’s biggest drug company, Pfizer, announced a cost-cutting programme that included 10,000 job losses – 10% of its global workforce. The measures, which it hopes will yield annual gross savings of around $5 billion, will significantly reduce its R&D, sales and marketing and manufacturing operations.

And when Pfizer sneezes, the rest of pharma catches a cold.

By late July, AstraZeneca had mirrored Pfizer’s approach with the announcement of a 10% reduction of its global workforce. Some 7,600 jobs are set to go, with sales & marketing, strategic sourcing and global supply chain positions all facing cutbacks. Days later, Johnson & Johnson began the biggest restructuring programme in its long history with the announcement of 4,800 job losses, while BMS also signalled its intention to restructure before the end of the calendar year. This in addition to the substantial layoffs already announced at Bayer Schering and Merck in 2006.

The trend is tipped to continue, as shareholders, perhaps unrealistically, seek a return to the double-digit growth companies enjoyed during the 1990s. Constrained by an absence of blockbusters in the pipeline and with a wave of patent expiries for some of the sector’s biggest products on the horizon, the industry’s hand has been forced. Analysts anticipate an increase in the number of external research partnerships, and further reductions in headcount.

But the long-term prognosis may not be so gloomy. Restructuring may yet lead to the emergence of more nimble, lean and responsive pharma companies. In the process, the industry’s leading players, who have for so long relied upon critical mass and growth through acquisition, could at last demonstrate genuine, if clichéd, ‘improvements in efficiencies’.

The latest wave of cutbacks may seem a bitter pill for pharma to swallow, but they might just nurse the sector back to full health.