Hard realities of PHARMA
In the last few years, biopharmaceutical industry has been scaling back R&D departments, slashing sales teams, and eliminating redundancies in post-merger workforces. This has resulted in a huge elimination of jobs. Top pharma companies have been merging
Pharma and Healthcare industry is traditionally subjected to an ever changing and increasingly competitive landscape. It has unsurprisingly also seen a disproportionate share of organizational restructurings, imminent layoffs, and even outright shutdowns and bankruptcies.
So, much so, that any M&A activity involving companies in this sector is accompanied by an almost immediate media speculation around an inevitable retrenchment and right-sizing activity that will follow. According to various reports, it is estimated that more than 300,000 pharma jobs may have been lost since the start of this century. That said, even this may be a very narrow view focussing solely on numbers reported by the larger players and without necessarily having fully accounted for all regional or sectoral variances. Also, true accounting for the indirect impact this has likely
had on the suppliers and other supporting industries is mostly not considered.
Of course, it may be worth noting that all layoffs and shutdowns do not necessarily result in an absolute and immediate shrinkage in the industry’s overall employment base or its contribution to GDP. An alternate inference is that this may more realistically result in a realignment of how the sector is choosing to organize itself at an aggregate. This is an obvious outcome from the inevitable - but prolonged in the latest case – cyclicality experienced in global macro-economic growth; especially amidst all the geo-political and financial uncertainties in the last decade. Further accentuating the situation is the new set of challenges being faced around how businesses will be conducted in the 21st century. This is because of ever evolving paradigms and innovation – from initial discovery to eventual delivery.
Doomsday predictions apart, it is imperative to understand this new landscape in a more thematic manner, so that the sector gears up appropriately to respond to such challenges. A cursory study of the more recent activity in the Pharma industry (refer: Table) suggests a number of interesting trends.
The challenges have been manifold. A much-feared patent cliff has become more of a reality in recent time– resulting from expiring patents without new avenues of growth opening up. Apart from generics manufactured in lower cost facilities flooding the market, there are other intellectual property challenges as well – especially in markets having less stringent IP protection laws and quality control regulations. Further, there is an increased competition from new players that have sprung up because of lower barriers to entry in certain business processes and activities that support or drive industry mechanics. All this is leading to ever-shrinking margins and market share, subjecting the businesses to an almost inevitable cost pressure.
Further analysis also indicates that an evolving, more informed and changing client base is an equally emerging reality, which companies need to respond to or else face extinction. Moreover, in certain mature jurisdictions, governments have also become increasingly cognizant of the prevailing issues with business ethics and practices in the sector. They are appropriately responding by having a hard look front to back - right from regulation and corporate governance practices, to quality control. To further accentuate the problem, government is also increasingly becoming a major client and procurer, and has therefore an even bigger influence in how the industry shapes up.
The industry is responding to these challenges in a number of ways: from consolidation through opportunistic inorganic growth that may be driven by motives as diverse as culling competition, building economies of scale, or simply to realize cost advantages
A number of companies lack the business acumen, or the scale or flexibility, or even intention to continue focusing on a broader agenda spanning multiple geographies and markets. An inevitable outcome in such cases is a total shutdown, bankruptcy or becoming an acquisition target.
through organizational and resource efficiencies – including but not limited to reduced employee base and salary bills, but by also re-skilling or replacing salesforce that is more suited to cater to the new client base.
Also, companies are attempting to become nimbler by outsourcing not just their non-core activities, but also the way they build their pipeline and conduct businesses. For instance, in house R&D is increasingly getting replaced by either supporting incubation activities with an arm’s length strategy, or even outright acquisitions of proven technologies or drugs. This reduc the gestation period as well as the cost of time to market. Similarly, supply chain management is being best left to logistics experts who are becoming trusted partners because of their deep understanding of the domain and better and flexible pricing because of the way they are able to aggregate these services across industry.
The Alarm Bell
Over the last several years, many pharmaceutical giants such as Pfizer, GlaxoSmithKline, and Novartis have announced huge layoffs. Drug discovery jobs have diminished on a large scale as the industry has cut costs in order to adjust to changing drug markets. Companies are facing setback both ways – they have fewer drugs in their product pipelines as well as patents on the biggest sellers are expiring. The implications for job seekers, both laid-off employees and new graduates, are dire. As the industry undergoes profound changes, job seekers must adapt, too.
A Drying Pipeline
To develop a new drug, it has to go through a lot of odds – long discovery time and costs a lot of money in R&D and manufacturing. The process in itself takes on an average of 12 or 13 years. With changing time and market, developing new drugs is getting harder. Also, translating breakthroughs in new science and technology into drugs is getting difficult. Revenues, as a result, have also fallen. Industry also seems to have been getting close to “the big patent cliff” with the imminent expiration of a large number of patents. This will force drug manufacturers to come up with cheaper versions of blockbuster drugs to sustain presence in the market.
Changing Job Scene
A lag in drug discovery process has led experts to believe that the big pharma is stuck. Pharmaceutical companies have been trying to restructure their organizations for the past several years, in order to make leaner operations through large scale mergers and acquisitions, risksharing partnerships, closure of entire therapeutic lines, R&D sites and production plants. As a result, big pharma is now employing fewer scientists than before in the West. Chemists have been hit especially hard; as the industry has moved away from small, chemically designed molecules towards large biologic molecules. However, these scientists may find opportunities elsewhere, such as in academic labs, as the industry has been ramping up partnerships with academia.
Risk of Outsourcing
Despite huge layoffs, big pharma still remains a significant employer – not only in Asia but in other markets as well. However, the industry is increasingly looking at ways of reducing costs and its exposure to operational risk. Observers even believe that small pharma and biotech will be the biggest area of growth in coming years. All things considered, someone’s nemesis may turn out to be another company’s gain, but jobs will nevertheless get aggregated and moved to geographies with a distinct competitive advantage when it comes to the costs of doing business. Further, this phenomenon is not merely restricted to lower end of the value chain or manufacturing. With the advent of new technology, even the drug discovery process is taking a virtual route. Another way big pharma is reducing its costs is by working with Clinical Research Organizations (CRO). Outsourcing R&D activities to CROs and off-shoring
According to various reports, it is estimated that more than 300,000 pharma jobs may have been lost since the start of this century.
That said, even this may be a very narrow view focussing solely on numbers reported by the larger players and without necessarily having fully accounted for all regional or sectoral variances. Also, true accounting for the indirect impact this has likely had on the suppliers and other supporting industries is mostly not considered.
other processes to companies in emerging countries such as India and China, are also done as a means of achieving material efficiency gains. Collaboration between CROs and big pharma is indeed becoming a recurrent theme.
The new Business Paradigm
In the last few years, biopharma has been scaling back R&D departments, slashing sales teams, and eliminating redundancies in post-merger workforces. This has resulted in a huge elimination of jobs. Industry has been trying to cut-down its employment base, and top pharma companies have been merging or acquiring fledgling companies, with the objective of later slashing jobs to realize synergies from such deals. Mergers and acquisitions portends job cuts to achieve efficiencies. Along with the biopharma M&A activity on the rise, merger-related layoffs will inevitably grow. The problem with these job cuts is that it is unclear exactly where these layoffs might happen. Also, some firms use M&A activities as an opportunity to downsize certain parts of its workforce.
Different Skills for a changed Market Reality
Over the last decade or so, sales force has faced a major reckoning as a result of company restructuring. Some of the cut-downs is justified by patent expiry of major medications. Furthermore, increased scrutiny of marketing ethics is also leading to a perceptible drop in the pharmaceutical sales force. In the past, physicians used to have more control over what to prescribe to patients, which resulted in a massive sales force focussed on direct sales and distribution of such products to physicians. Pharma customers have changed dramatically however, and are more sophisticated, aware and interested with a large footprint and more active involvement.
This shift in the payer and prescriber ground has therefore prompted biopharma marketing teams to change their strategies. Payers and government entities are also playing a role in this shift with their health care reforms.
For more than a decade, R&D investment in the industry has been relatively flat. This is why, in-house R&D operations at big pharma companies like AstraZeneca, Allergan, Novartis, GlaxoSmithKline, Amgen and other big pharma companies have become a target of job cuts.
In trying to acquire a new pipeline, companies have two choices – either spend their resources in R&D, or acquire pipeline. And more often, sustaining a large R&D function looks like a vain in comparison to acquiring a new pipeline.
Further, many companies are also exploring the possibility of striking deals or licensing arrangements, with the objective to piggy-back existing or indevelopment drugs. In other cases, R&D cuts may result in the scientific facilities getting moved to biotech parks or such hubs that provide tax breaks or financial incentives from participating governments that are trying to promote them.
Where will this lead?
All this is of course an attempt to re-align, with an intention to survive the new business reality. However, a number of companies lack the business acumen, or the scale or flexibility, or even intention to continue focusing on a broader agenda spanning multiple geographies and markets. An inevitable outcome in such cases is a total shutdown, bankruptcy or becoming an acquisition target. Everyone is speculating as to when this crisis will end for good, although no one can be sure.
There are some encouraging signs however. FDA recently announced that it has given the green light to 35 new drugs never approved before for the US market -the second highest number of approvals in over a decade. This has been made possible partly due to an accelerated approval process. Still, it is a welcome cushion for companies with patents expiring in the near future.
Priyanka Bajpai firstname.lastname@example.org
Despite huge layoffs, big pharma still remains a significant employer – not only in Asia but in other markets as well. However, the industry is increasingly looking at ways of reducing costs and its exposure to operational risk. Observers even believe that small pharma and biotech will be the biggest area of growth in coming years.