US pharma layoffs do not reflect the industry's health

The British government’s WWII rallying cry, “Keep Calm and Carry On” is worth keeping in mind as the US biopharma industry (pharma and biotech) goes through its current wave of mergers, acquisitions and realignments. There will be layoffs (layoffs have been a constant for years now); there will be shutdowns of some facilities and consolidations of others.

Even as the proposed (but not accepted, as of early May) merger of Pfizer and AstraZeneca was announced, there were headlines about the employment impact: “In Drug Mergers, There’s One Sure Bet: The Layoffs,” ran the title of a Wall St. Journal article (registration required). The article noted that Pfizer, having absorbed 134,000 jobs through acquiring Warner Lambert, Pharmacia and Wyeth during the 1999-2009 period, saw its overall employment grow by roughly 27,000 by the end of 2013—in effect, disappearing over 100,000 jobs between 1999 and 2013.

The Pfizer-AZ plan was preceded, by a week, by the Valeant-Allergan bid (also not accepted by Allergan at presstime); Valeant has a track record of substantial layoffs after acquisitions, and the company told Wall Street that, in effect, it would remove over $2 billion in expenses within the first year after acquisition, and targeted “unproductive” Allergen early-stage research specifically. “A Drug Maker With Little Patience for Science” is how one of the WSJ headlines about the proposed deal ran.

The WSJ is not alone in focusing on layoffs; the industry website FiercePharma.com announces many of the layoffs it hears about, and runs a “Top 10 Pharma Layoffs of the Year” annually. “Merck, AstraZeneca, Pfizer top list of biggest pharma jobcutters” was the headline it ran last October about another layoffs compiler, FirstWord Pharma.

The most grating perspective, arguably, came from Forbes.com back in 2011, when it ran a story titled “A Decade in Drug Industry Layoffs.” Drawing on the monthly report of the well-known outplacement firm, Challenger, Gray & Christmas, it found that between 2000 and the first few months of 2011, the US pharma industry had cut 297,650 jobs. That number actually exceeded total US employment in what the US Dept. of Census classifies as the “pharmaceutical and medicines manufacturing” group (NAICS 3254; it includes biotech-based drug manufacturing), which was about 270,000 in 2011 (it’s poised to exceed that in 2013; see Table 1).

“A Pharma Industry in Crisis” wrote a Science reporter in that same 2011 period, going on to say “The implications for job seekers, both laid-off employees and new graduates, are dire.”

To be fair, the Forbes writer noted in the article that overall employment hadn’t changed much over the decade (which is true in a narrow sense, but as we’ll see, underplays the dynamism of the industry). But with the headlines and tabulations of layoffs, the overall impression—reinforced each time a new major layoff is announced—is that the US pharma industry is contracting. There also seems to be an undertone of schadenfreude—a perverse enjoyment of the layoffs, an emotion caused by—what? High salaries for pharma execs? Unfair pricing for new drugs? Maybe it’s simply a reflection of the low regard for the industry by major sectors of US society.

The ever-‘dying’ sales rep

Special mention deserves to be made of one occupation within pharma: sales reps. For some reason, the word “dying” has been automatically added to the phrase “sales rep” for the better part of a decade now. Even this year, Pharmaceutical Executive Global Digest has run a story, “End of the Road for the American Rx Salesperson,” adding that 2014 may be the year the ‘pharma salesperson’ really begins his slow walk to extinction.” (That “really” really hurts!)

There aren’t reliable federal data on pharma sales reps, but the general sense, from companies that track the field such as ZS Associates and IMS Health, is that the profession topped out at around 110,000 in the mid-2000s and has been declining since. The current count is around 60,000, and there are signs that it’s bottoming out around that figure. A 46% decline in employment is nothing to sneeze at, to be sure. But the flip side of this is that 60,000 (or 50,000 or 40,000, or wherever the true bottom is) represents a large, vital and powerful occupation in the industry. Many of the “dying sales rep” articles make the point that fewer reps are knocking on fewer physicians’ office doors. But that hardly translates into a cessation of sales activity. Rather, the occupation is moving to market access teams, key account managers, and newly invigorated sales efforts to organizations such as accountable care organizations and PBMs.

The current industry tenor is that outcomes research and “real world evidence” is the coin of the realm in pharma marketing. Well, it’s not a great leap of imagination to understand that communicating those outcomes and evidence will be crucial to the industry going forward. Add in the still-common sales efforts in countries other than the US and parts of Europe; add in the products of the pharma industry not 100%-dependent on formularies (such as aesthetic medical products); add in first-of-its-kind products for which the medical community needs education; and you have a profession whose prospects are actually pretty good.

The real numbers

Both PhRMA and BIO, the leading trade associations of the industry, depend on the Battelle Technology Practice Partnership (Columbus, OH) for analyses of the industry and employment trends. Although Battelle has been fairly prolific in this regard, generating biennial reports for BIO (the next one is due out at BIO’s international meeting in June; see the 2012 report here), and PhRMA sponsored a similar study in 2013 (available here), make no mistake: the reports analyze employment as a component of the overall economic impact of the industry, not as career-planning guidance for workers.

BIO’s reports provide a state-by-state comparison of employment in the “biosciences” industries (including parts of agriculture, all drug and medical device manufacturing, and selected pieces of R&D and wholesale distribution). PhRMA’s report, “The Economic Impact of the U.S. Biopharmaceutical Industry” was more narrowly focused on drugs and related economic activity, and includes direct, indirect and “induced” employment (i.e., employment in other sectors of the economy).

In 2012, looking at the 2010 data for BIO, Battelle found that, between 2001 and 2010, there was a 6.4% increase in the “biosciences” employment—to 1.61 million. By comparison, the entire US private sector shed 2.9% of jobs over that span (recall that in 2010, the US economy was slowly emerging from the 2008-9 Great Recession). In 2013, looking at 2011 data for PhRMA, Battelle found 813,523 direct jobs in biopharmaceuticals, and by adding in the indirect and induced employment, a whopping 3.363 million jobs (there was no historical trend data).

These data are great for policymaking in Washington and elsewhere, but don’t say enough about the career stability of those who work in the biopharma industry, from research to manufacturing to distribution. Pharmaceutical Commerce has taken a closer look, drawing on some of the same US Bureau of Labor Statistics categories that Battelle does, but narrowing the focus to drug-related businesses primarily. Our data draws on three categories from the BLS Quarterly Census of Employment and Wages (QCEW):

• NAICS 3254: Pharmaceutical and biotech drug manufacturing, including medicinals and botanicals (325411); pharmaceutical preparations (325412); in-vitro diagnostic substance manufacturing (325413); and biological product (except diagnostic) manufacturing (325414)
• NAICS 541711, R&D in biotechnology (a series that BLS began tracking separately only in 2007)
• NAICS 424210, Druggists’ goods merchant wholesalers.

Table 1 shows the year-by-year data, with results in 2013 estimated from nine-month data to the full year, and Fig. 1 shows the same graphically. The result: an amazing stability—even flatness—in the totals, with 2001 at 597,214, and 2013 at 607,130; a change of +1.7% over the span. (One important qualifier: to backfill the biotech R&D numbers to 2001, we used an average proportion—25%--of all “Physical, engineering and biological research”—NAICS 54171—for the years 2001 to 2006. The 25% proportion is roughly what the biotechnology R&D category has represented of the overall physical, engineering and biologic research category during 2007-2012. Battelle used a figure of 35% of the larger NAICS 5417 category, “Scientific R&D services” in its 2013 PhRMA report.)

Secular trends

It’s worth noting what has occurred within the three categories:

• NAICS 3254, pharma manufacturing, peaked at 294,792 in 2007, dipped and began rising just recently; the estimated total for 2013 is 276,542; a decline of about 18,000, or 6%, from the peak. Surprise! The Challenger, Gray & Christmas layoffs were absorbed, and the industry moved on.
• NAICS 541711, biotech R&D, has been on a steady upward climb except for 2009 and 2010, whereupon it immediately began marching up again. From 2001 to 2013, the increase has been a solid 23.3% (mind you, both ends of this span are estimates).
• NAICS 424210, druggist wholesaling, peaked back in 2004 at 216,802, and has been declining ever since, losing 13% by 2013. Druggist wholesaling includes a lot of products (health and beauty, nutrition, etc.) besides drugs; on the other hand, the biggest drug wholesalers handle many of these products as well as drugs. Based on data derived from the HDMA 2013-4 Factbook, roughly one third of NAICS 424210 comprises HDMA member companies’ employees, which leaves a lot of non-HDMA and non-drug wholesalers in this category. Both the drug wholesaling and retail drug industries have seen considerable consolidation over the past decade; 90% of all US drugs are handled by the 32 HDMA members, and the biggest retail chains (pharmacies, supermarkets and mass merchants) handle about 83% of drug prescriptions.

Perhaps the most surprising factor to consider here is that although drug spending has increased by more than 63% over the period 2002-2012 , and prescriptions dispensed by 21% (from about 3.3 billion to 4 billion), employment was stagnant. Yes, drug prices from branded products escalate annually—but more of them became generic over the period, and more generics were prescribed in the overall mix (it’s currently running at 86% of prescriptions filled). And no one would argue that it has become easier to navigate the FDA drug-approval process, followed by the commercial contracting and selling process, for new drugs in the past decade. The pharmaceutical delivery system—from researcher to manufacturer to distributor—is running faster with roughly the same number of workers.

Another factor to be considered is the outsourcing trend that has been dominant in pharma for the past decade. The concept of a “virtual” company, perhaps doing its own R&D, but outsourcing manufacturing and sales to others, was a new idea for most in the early 2000s. Contract research organizations (CROs) that manage the clinical trials process have grown tremendously over the past decade. Some of this is captured in the BLS data—for example, CROs would fall in the NAICS 54171 category, and the pharma workers who would have been managing those trials fall out of NAICS 3254, but many aspects of the outsourcing shift would not be captured; an example might be outsourced IT services, which might have been done internally by pharma companies in the past. The upshot is that while there might be thousands more workers dependent on the actions of pharma companies, they are not themselves pharma employees. (These are mostly the “indirect” jobs counted by Battelle.)

What does all this mean for the working pharma mid-manager, or one who might be about to be laid off if the announced (and yet to come) mergers are completed? One definite conclusion is that while any laid-off employee is confronting a soft job market, the market is no worse and arguably significantly better for pharma executives. Experienced Big Pharma executives leaving and joining smaller or startup firms is a well-trodden path. The outsourcing trend has let up in some ways (in particular, the “offshoring” of outsourced jobs); but today’s experienced pharma executives can wind up in business consulting, in healthcare services directly, in regulatory compliance organizations, or in the growing field of nonprofits focused on healthcare, to name a few.

Unquestionably, it is hard when a far-off executive at another company barges into an organization and begins handing out pink slips left and right. Lives can change almost overnight. But the case that the pharma industry is more prone to this, or that employment prospects are worse for those who have invested years in the industry, is belied by the facts.

Of critical importance to pharma innovation in years to come, new college graduates and newly minted PhDs may turn away from the industry based on the steady drumbeat of dire headlines that the business press has a habit of generating. In January, PhRMA and US News and World Report sponsored a study and presentation with the theme “STEM Saves Lives” (referring to the educational grouping of Science, Technology, Engineering and Mathematics), and making the case, along the way, that PhRMA member companies have been avid supporters of STEM education. There and subsequently, Science blogger Beryl Lief Benderley asked, “Can industries that have laid off large numbers of scientists and other technically trained workers credibly claim to worry about an ‘increasing STEM … skills gap’ in the United States? Apparently they think so…” and went on to say, “When asked by this reporter to explain the relationship between the purported gap in available workers' STEM skills and the industry's enormous layoffs—which includes many scientists and other highly skilled technical workers—neither [John Castellani, CEO of PhRMA] nor John C. Lechleiter, chairman, president, and CEO of Eli Lilly and Company, provided a meaningful answer.”

The answer that could have been given by Castellani, Lechleiter (or Benderley herself) is that despite the layoffs, pharma and biotech employment remains stable; the industry is generally profitable, and the R&D spending (on the work of valued researchers now and yet to enter the workforce) is sustaining.

And maybe the relatively good news in biopharmaceuticals is beginning to sink into the business press. In a May 12 WSJ article on Pfizer’s bid for AstraZeneca, the title was “Past Pfizer Cuts Suggest Hope for U.K. Jobs,” and noted that a 2011 Pfizer plan to shut down a Sandwich, England site was changed to a significant downsizing, and since then pharma services companies (including at least one founded by former Pfizer employees) and others have come to the site. “Science jobs don’t rely solely on the bigger competitors … the drug industry hasn’t been squashed—rather, it has changed shape,” concluded the writer.

Many news articles about the future of the pharma industry make the deserved complaint that the industry is slow to change. A case could be made that the business press following the pharma industry suffers the same problem; it seems to always be looking back to some halcyon past when everything in pharma was “good.” More to the point, though—and not overlooking the pain that laid-0ff pharma workers have and will experience—the industry is evolving and moving forward. New science is creating new products, and the industry will need more of the best and brightest to make these products a reality.

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013*

Pharma Mfg

280,665

293,179

291,795

287,199

288,155

294,792

289,586

283,731

283,731

278,792

269,865

269,660

276,542

Druggist wholesaling

201,228

209,668

213,475

216,802

214,988

212,177

213,489

205,962

197,150

190,234

187,675

187,689

188,408

Biotechnology R&D

115,321

115,550

116,865

119,913

127,132

133,879

135,424

141,287

139,637

136,640

139,508

140,184

142,180

TOTAL

597,214

214,397

622,135

623,914

630,275

635,822

643,705

636,835

620,518

605,666

597,048

597,533

607,130

Figures in

yellow

are estimated based on 2007-2013 proportions.

*Estimate based on part of 2013 monthly averages.