Between
2009 and 2013, U.S. biopharma eliminated at least
156,000 American jobs,
including scaling back R&D departments, slashing sales teams, and
eliminating redundancies in post-merger workforces.
Since
then, the industry has continued to slice and dice sections of
its employment base, particularly in the wake of a record level
of M&A activity
in the sector (there were 182 biopharma deals totaling $212 billion in 2014
alone, and 2015 looks on pace to beat that record). The Wall Street Journal points out that Pfizer, for example, has a
habit of snapping up big companies and then chopping up jobs as it
realizes synergies from those deals.
1) M&As: Harbingers of the pink slip
This
shouldn't be particularly surprising, according to Dan Mendelson, president and
CEO of healthcare analytics firm Avalere Health. "[W]henever there's a
consolidation, there are efficiencies that are created by the fact that there
are two heads of managed markets, there's two heads of government relations,
two heads of commercial," he told BioPharma Dive in a telephone
interview.
"So
you end up being able to achieve cost savings as a result of that duplication.
And that is a natural consequence of mergers because that's the way that they
achieve efficiencies. And good or bad, that's what they end up doing," he
said.
With
the pace of biopharma M&A activity on the rise, the number of these
merger-related layoffs will continue to grow. To cite just one major recent
example, biotech giant Amgen announced in March that it would cut about 40%
of the remaining workforce (about 300 employees) at subsidiary Onyx Pharmaceuticals and
shutter one of its facilities in south San Francisco. All told, Amgen
announced approximately 4,000 layoffs in 2014.
But
while it's obvious that a merger or acquisition portends job cuts, what's less
obvious is where, exactly, those layoffs might take place at a given company.
And some firms use the advent of an M&A to "rightsize" certain
parts of its workforce.
Amgen,
for instance, has focused most of its cuts in manufacturing and R&D in an
effort to revamp its organizational structure. But others might pursue a
different method, especially in an era of a changing pharmaceutical sales force
and more sophisiticated healthcare payers that increasingly have a say in the
way that biopharma does business.
"One
of the things I've seen in some of the mergers is that they'll use the merger
as an opportunity to also rightsize the salesforce and some of the other
functions to make sure that they're accommodating the new reality to the
payers," said Mendelson.
2) A shifting customer base, a diminishing sales force
Over
the last decade, the pharmaceutical sales force—once one of the most dominant
marketing behemoths in corporate America—has faced a
reckoning. Pharma
giants such as AstraZeneca and GlaxoSmithKline have slashed their sales forces
over that time, with more than
4,000 sales job cuts
at AZ since 2012 alone. This year, Glaxo announced about
900 layoffs
from R&D and sales, and according to
Cegedim Strategic Data, the size of the U.S. pharmaceutical sales force shrunk by about 2%
between 2013 and 2014 to less than 65,000—a dramatic 40% slide from the peak
2006 level of more than 100,000 U.S. pharma sales reps.
So
what's going on? In part, the cuts can be explained by patent expiry of major
medications and increased scrutiny over marketing ethics. For instance, GSK came under
fire for its effort
to hawk its blockbuster moderate-to-severe asthma medication Advair that may
have led to overutilization and patient deaths.
The
other reality is that the payer and prescriber ground has shifted beneath
pharma's feet.
"The
fact is that the pharma customers have changed dramatically,"
explained Mendelson. "It used to be that physicians have a lot of
control over prescribing, and massive sales forces were created to address
that, to get physicians interested in prescrbing products that the companies
were selling.
"And
a lot of the change that we see is in the sales force and in reorienting that
sales force towards the new buyers—who are more sophisticated, they're larger
health plans—and kind of dealing with that whole set of trends."
Now,
biopharma marketing teams must grapple with a new set of players—namely, payers
and government entities who are beginning to flex their muscle under the advent
of healthcare reform and a worldwide
backlash against the high prices of medications and healthcare at large. The door-to-door salesman
approach isn't likely to be effective when dealing with entities like the
federal government and Express Scripts, which has consistently telegraphed its
war on high-priced specialty medications for therapeutic fields from cancer to
hepatitis C.
"The
selling is very different from the way it was 10 years ago because of the fact
that the buyers are more sophisticated than they were then," said
Mendelson. "In addition, you have to also kind of take a step back
and see where most of the volume growth is coming from, and that's government
programs.
"So
the companies have to get a lot more sophisiticated about their knowledge base
with respect to [the Centers for Medicare & Medicaid Services] and the
government programs that run Medicare, Medicaid, the [Obamacare] exchanges, and
the like."
3) More pipeline acquisitions, smaller R&D shops
The
Pharmaceutical Research and Manufacturers of America (PhRMA) trade group
recently put out its latest wide-ranging
report on the
status of the biopharma industry in the U.S. And when PhRMA emphasized the
sector's devotion to R&D, the very life blood of any drug development
effort.
"Despite
ongoing economic challenges, the biopharmaceutical industry continues to be one
of America’s most research-intensive industries," wrote the report authors, noting that
PhRMA member companies alone invested $51.2 billion in research and development
in 2014. "According to a recent analysis... the
biopharmaceutical industry leads the manufacturing sector in innovation and
economic contributions.
"Biopharmaceutical
companies on average invest as much as six times more in R&D, relative to
their sales, than the average U.S. manufacturing firm. In 2014, PhRMA member
companies invested nearly 24 percent of domestic sales into R&D."
That
may be true. But since 2010, R&D investment in the industry has been
relatively flat, rising less than $1 billion over that timeframe.
And in recent months and years, in-house R&D operations at big pharma companies have been a near-constant target of job cuts, especially at large firms like AstraZeneca, GlaxoSmithKline, Allergan, Novartis, and Amgen. AZ cut more than 8,000 jobs, and more than 2,000 in R&D, since 2010 alone, while in the U.S., Pfizer has made big cuts to its R&D budget over the past five years.
Many
of these companies are focusing instead on striking deals or licensing
arrangements to piggy-back off of existing or in-development drugs.
"I
think that a lot of companies are revisiting the R&D function," said
Mendelson. "To get new pipeline, a company has a choice. They can
spend their resources in R&D, or they can acquire pipeline. And I think
that what we're seeing is more of an interest in acquiring pipeline and less of
an interest in sustaining a large R&D function.
"There
are certainly excpetions to that, and there have been some very productive
R&D shops. But then there's some that have not been as
productive."
Could
these companies eventually come to regret these cutbacks, axing hundreds of
their best and brightest minds and potentially sending them off to work for the
smaller competitors?
Mendelson
doesn't believe so. "I think generally the R&D shops that are seeing
the biggest cuts have not been as productive, historically, and they can be
rebuilt around areas of scientific inquiry," he said. "If
anything, the pharmaceutical industry has been loathe to cut R&D because of
the optimism and the promise of thse R&D shops.
"I
don't think that the companies are going to look back and pine for the days
they had these huge R&D shops. You can have a research and development
enterprise that is more resilient as science is changing, to that smaller shop
that is more top-heavy and has perhaps a little bit less of the bad science
going on and a little bit more of the discernment that comes from having really
good senior people running it."
In
other cases, R&D cut may be a simple reality of relocation to a new
scientific nucleus. For instance, Shire announced in March that it would be
changing scenery and joining the mass biopharma movement to the Boston area—and
would be laying off as
many as 600 people
in the process.
"The
companies are moving to places where there is a vibrant scientific
community," said Mendelson. "They are specifically attracted to
places where there are a lot of genomics and sequencing activity going on. And
that includes Boston and Washington, D.C. and some places in California, where
the talent pool is there, the knowledge base is there, and there's a lot of
scientific activity and incentives for development that are being layered in.
"And
I would say that that motion is largely due to the fact that the intellectual
property around some of the new science is in some different places from the
old science."
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