P&G's drug dependence wanes

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After a two-decade struggle to establish itself as a pharmaceutical player, Procter & Gamble Co. has pulled the plug on prescription-drug research, highlighting mounting troubles at its broader drug business that looked promising only two years ago.

A spokesman said the company is eliminating 300 pharmaceutical R&D jobs at the $500 million Health Care Research Center it opened to much fanfare 10 years ago in Mason, Ohio, under former Chairman-CEO John Pepper. The site, which will still employ more than 2,000 people who work on ongoing Rx compliance, evaluating candidates for licensing drugs and other P&G health- and personal-care businesses, has been redubbed the Mason Business Center.

The generic title adds to questions about whether P&G will stay in health care-including its over-the-counter business that includes Prilosec OTC, Vicks, Metamucil and Pepto Bismol-as the pillars propping up the drug business since current Chairman-CEO A.G. Lafley decided to keep it in 2001 have been weakening or crumbling.

The unit has only one billion-dollar drug-osteoporosis drug Actonel-and its sales have been steadily declining since Roche and GlaxoSmithKline launched once-monthly Boniva last year. Its Intrinsa sex-drive patch has been mired in clinical trials since 2004. And P&G's 36-month window of exclusivity from the FDA to market AstraZeneca's Prilosec OTCends in June, opening it up to private-label competition, lower prices and sales for the $400 million-plus OTC switch.

In fact, the biggest product in P&G's once-ballyhooed unit isn't a drug at all: It's Iams pet food, folded into health care in 2000 because of its emphasis on research.

Actonel, OTC switches and the new-drug pipeline were reasons Mr. Lafley gave for keeping the drug business after the acquisition of Clairol from Bristol-Myers Squibb in 2001. With those reasons now wavering or gone, it raises the logical question of whether the whole drug business will be sold, particularly with debt from the $57 billion acquisition of Gillette still to be retired.

`New model'

"The core reasons that P&G values our pharmaceutical business remain the same," said a P&G spokesman. "We are a strong profit contributor, but our value goes beyond profit contributions. Our pharmaceutical business provides the rest of P&G new technologies and health-care insights that most other consumer goods companies do not have."

The R&D cuts come on the watch of Vice Chairman of Health and Family Care R. Kerry Clark, who has a habit of being in the line of fire when tough decisions get made under Mr. Lafley. In his last post, he outsourced more than 10,000 jobs in information technology, human resources, building maintenance and call-centers.

P&G attributed slashing drug R&D to a "new business model" in which it markets or licenses products developed by others. The "connect and develop" strategy has worked well in some categories where P&G is a heavy hitter-like household products with Mr. Clean Magic Eraser and Swiffer Duster.

But P&G is competing for new drugs with far bigger pharmaceutical companies who bring much larger and more-established regulatory compliance and sales forces to the deal. "Why would anyone want to bring an Rx drug to P&G?" asked one person familiar with the industry.

The spokesman said the drug unit's consumer marketing expertise, its relatively small size and personal touch and its proven track record in partnerships on such drugs as Actonel combine to make it an attractive partner for the 4,400 active biotech companies worldwide.

The 300 R&D jobs will save P&G about $60 million a year-money that could go toward acquiring Rx drugs from others-said a former executive familiar with the business. But he doubts P&G will have the patience to make such deals pay off, and said that P&G's troubled past with the FDA makes the idea less appealing.

Among P&G's legendary FDA fiascos is Olestra, the fake fat whose patent protections began to lapse before it finished a nearly two-decade approval process in the mid-1990s. Olestra products had to carry labels warning of gastric side effects and ultimately, P&G sold the facilities and took a nine-figure write-off.

Its Intrinsa testosterone patch for post-menopausal women remains in extended clinical trials. P&G withdrew a 2004 FDA application after an FDA advisory panel expressed safety concerns. Some familiar with P&G see little hope Intrinsa will ever be approved, much less become a blockbuster.

Meanwhile, prospects darken for the brightest spot in P&G's drug business as its exclusivity window closes. P&G executives said Prilosec OTC was meant to make P&G the partner of choice for OTC switches. And while it has become wildly successful as the leading OTC heartburn drug, P&G has yet to announce its next major switch.

Actonel also threatens to draw P&G into the pharma industry's clinical research scandals. The Times Higher Education reported late last year complaints of a British medical researcher, Aubrey Blumsohn, whose name appeared on a scientific report to a medical conference backing the efficacy of Actonel but who said he was given only limited access to P&G's clinical data. P&G said he was given "full and unfettered access" to the data.

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