Big Pharma prunes R&D as times get tough

By Ben Hirschler and Lewis Krauskopf

LONDON/NEW YORK (Reuters) - Faced with sickly investment returns, the world's top drugmakers are taking the knife to research and development.

GlaxoSmithKline disclosed plans on Tuesday to cut up to 850 jobs in research and development, on top of 350 such cuts announced by the drug maker in June, while Pfizer Inc revealed its decision to drop efforts to develop medicines for heart disease, obesity and bone health.

The moves promise to be the latest examples of a trend towards rethinking leaner R&D operations that analysts expect to gather pace on both sides of the Atlantic.

"There is a feeling that bigger is not better and you have to concentrate your innovation. Trying to do everything doesn't seem to have worked," said Ben Yeoh, an industry analyst at Dresdner Kleinwort. "A lot of companies are thinking along these lines."

The pharmaceutical industry is exploring ways to improve productivity because many companies have brought few successful medicines to market, despite spending billions of dollars a year on research and development.

Drug companies initially focussed on sales, marketing and manufacturing, but are now turning to research to generate savings.

"What the industry now is focussed on is reallocation of scarce resources in R&D," said Deutsche Bank AG analyst Barbara Ryan. "They have to behave like portfolio managers and identify the best opportunities for a finite pool of capital."

Some companies have already made strategic decisions.