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 efforts to hawk the blockbuster moderate-to-severe asthma medication Advair—an effort 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 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 just about $500 million 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 cuts 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."