The speculation earlier this week that Roche was planning a round of cutbacks is, in fact, on the money. After a scheduled managerial meeting, the drugmaker issued a statement using the usual euphemisms to signal job losses - Roche will “adapt cost structures and accelerate productivity improvements.”

There were scant details provided, other than that the entire organization will be reviewed in coming months and an announcement will be made by year’s end. One analyst tells Reuters the cuts could involve up to $1.9 billion in cost savings and will likely target salespeople, particularly in the US, and R&D. Of course, Roche has already rejiggered R&D in the wake of the Genentech acquisition.

The move is hardly surprising, though, given recent setbacks Roche has endured: trials were suspended for its ocrelizumab rheumatoid arthritis drug; there was a delay with an experimental diabetes drug; another delay in winning FDA approval for a Genentech cancer drug (see here) known as T-DM1, and the recent recommendation from an FDA panel to rescind a breast cancer indication for the best-selling Avastin cancer med.

Nonetheless, Roche ceo Severin Schwan insists “we have launched this initiative from a position of strength.” How so? He notes that Roche doesn’t face a stiff patent cliff to the same extent as its rivals. But he then blames “mounting pressures to curb healthcare costs – especially in the US and Europe – together with recent developments in late-stage projects in the Roche pipeline.” This is a bit of a stretch. One could hardly call pipeline setbacks a position of strength.

Here’s the memo to employees:

Dear All,

Work is now underway across the company to look at how we might run our business more efficiently and effectively, so we can dedicate resources in a more focused way to the great science in our pipeline. The aim is to protect our investment in innovation, in the face of external pressures and internal setbacks.

The impact of US healthcare reform, pricing measures in Europe and higher demands from regulatory authorities have all had an impact on our business. On top of this, the past months have brought a series of pipeline disappointments, in particular the significant delay in the development of taspoglutide and the ODAC recommendation on Avastin for metastatic breast cancer.

The net effect is that we have had to revise our revenue forecasts and must now adapt our business and manage our costs more carefully so as to safeguard our funding of innovation. We all play a role in rallying behind these efforts so we can support the projects that have the most potential to bring new, breakthrough medicines to patients. The results of our work today will help us to deliver on our strategy and prepare for the growth that lies ahead.

As I communicated earlier, in Pharma Medicines we are supporting this aim with an Operational Excellence project. I am pleased to announce the team who will coordinate these efforts, along with more details on the scope and timeframe for the project.

Operational Excellence Project Management Office

The Corporate Executive Committee will oversee all efforts across the Roche Group as each unit of our company will be engaging in similar efforts to increase our productivity. In Pharma Medicines, the Pharma Medicines Leadership Team (MLT) will act as a Steering Committee for the Operational Excellence Project Management Office (PMO).

The members of the PMO are confirmed as follows:
Central Office:
Steve Krognes (lead)
Fred Brecht
Kyle Foscato
Alexander Keller
Judith Moloney
Toby Schilke
(HR and other additional representatives TBD)

Functional Leads:
Global Technical Operations - Markus Gemuend
Global Product Development - Todd Rich
Procurement - Kurt Kopp
Nutley site - Joe Dunn
South San Francisco site - Tom Lyon
Basel site - Urs Schneeweis
Global Product Strategy - Ueli Fankhauser
Commercial North America - Len Kanavy
Commercial Latin America - Alvaro Soto
Commercial Western Europe - John Melville
Commercial CEMAI - Vesna Cizej
Commercial Asia Pacific - Marc Rivers

Scope:
Each functional lead, working with their respective MLT member will appoint a team of experts for their business area. Their mandate is to come up with solutions that will allow us to spend more wisely: either by finding new, much more efficient ways of getting the work done or by stopping activities that don’t make the best use of resources.

The efficiencies generated will then be channeled into innovation such as funding our clinical trials. To find the best solutions, the teams will undertake a fundamental review of structures, processes and activities. I want to stress that this is about implementing sustainable changes to the way we do things, making us more nimble and flexible across all areas, in a way that makes the best sense for the business.

As such, this is far from being merely a short-term cost-cutting exercise. Instead it is a comprehensive review of the business including sourcing, portfolio management, procurement and business models that will lead to both short-term savings and long-term improvements. We will work closely with our colleagues in pRED, gRED and the Corporate groups to align with similar work they are doing and to look at the many interfaces at play. This project does not replace the efficiency initiatives already underway in various functions. Instead we will complement and build upon the existing efforts.

Timeline:
We will approach this in three phases so as to thoroughly consider the alternatives before reaching decisions on how to realize efficiencies.

First we will complete a baseline assessment and establish a fact base of all areas of the business. This will take place between now and October. During this time, the PMO team will start to identify opportunities for improving productivity and managing costs, drawing from best practices and leveraging both internal and external benchmarks. In this phase, they will also identify target savings for each function.

During the second phase, between October and December, we will validate alternatives and agree upon action steps, based on endorsement by both the MLT and the Corporate Executive Committee. The teams will start outlining action plans during Q4 2010. We then expect to be able to begin the third phase, implementation, by early 2011. This is an ambitious timeline and I ask that you do all you can to help the team in achieving this.

At this early stage of the project, I recognize that there will inevitably be questions and uncertainty as to what the outcomes might be. This is not helped by rumors and speculation so I want to give you my personal commitment that you will be kept fully informed of the facts. We are still in the analysis phase and decisions have not yet been taken in relation to the project. The MLT and I will regularly update you as we me make progress. In addition, leaders in each function will communicate any changes within specific business areas.

At the same time, I encourage you to talk to your manager about any concerns you might have and to not hesitate to email your respective functional lead, MLT member or myself with any questions and ideas as to how we can make this project a real success.

I appreciate you giving your support to this critical work in the coming weeks and months. These efforts are essential for ensuring we are able to fully deliver on the potential of our pipeline - potential that will enable our next phase of growth and ultimately transform medicine for the benefit of patients around the world.