How bad are the job losses in pharma? How long will they last? As a starting point, every month brings new, grim numbers from Challenger, Gray & Christmas, a Chicago firm that specializes in executive recruiting.
Recent Challenger data suggest that, at the moment, the job losses in pharma are intensifying relative to other industries. In 2010, the drug industry has overtaken the retail and transportation sectors as the industry with the second-highest number of job reductions. The only part of the economy that is worse: government, which has shed 279,000 jobs to date in 2009 and 2010.
According to Challenger, pharmaceutical companies shed 58,583 jobs in 2009, and 43,334 through September of this year. The average number of pharma job losses, by our math, dropped slightly from 4,882 monthly during 2009 to 4,814 monthly during 2010 through September. That's the only good news in this article.
Numbers of life science jobs are not tracked by official statistics. The U.S. Bureau of Labor Statistics does have great numbers on shampooers. And pavement specialists. But there are no job categories that map exclusively to drug, device and biotechnology research.
Fortunately, the Pharmaceutical and Research Manufacturers Association (PhRMA) does release an annual report on the industry. It has a few clues.
In 2008 and 2009, PhRMA says, the industry spent 1.1 and 3.4 percent less on global R&D. That's a reversal of decades-long trends toward ever-higher spending. PhRMA publishes the numbers back to 1970, and there has never been a comparably bad two-year span. We doubt the trend will turn positive this year.
Fewer R&D dollars might or might not mean fewer people. The industry boasts about its R&D to such a degree that those jobs may be protected. Alternately, greater comfort with contract research organizations (CROs) might permit even deeper cuts than in other economic contractions.
For the year of 2008, in its report published in 2010, PhRMA says that 90,712 research and development people work at its member companies. In aggregate, PhRMA's members had 686,422 employees, meaning that 13 percent of workers (or one in eight) is doing science and research. Keep that 13 percent figure in mind. There will be a quiz.
Using rough division, dividing its R&D spend by the number of such employees, PhRMA companies enjoy $508,000 in revenue for each scientific employee. (A global average might well be higher, with off-the-charts numbers from biotech companies like Roche, which belong to different lobbying groups.)
Michael Harte of The Harte Group has been working with the Challenger numbers, some Fierce Pharma data about recent job losses, and calculating his own figures. He decided to plot two sets of numbers together: the revenue per employee at each large drug company, and the likely patent-related revenue losses for the industry as a whole.
His numbers are approximations. The revenue-per employee figures are based on a dozen large firms. The patent-loss numbers apply to the industry as a whole. But his exercise is still sobering.
Harte estimates that accountants across the industry would like to see an average of $467,000 in revenue for each employee. That aligns with the PhRMA data. He's also assuming that $120 billion in pharmaceutical revenue will vanish due to patent expirations. That figure, he says, encompasses several years of drugs like Plavix and Lipitor going off-patent.
When $120 billion in revenue disappears, Harte calculates, 274,000 additional jobs will be axed as a result. That works out to about quarter of all the workers that Harte counts on the twelve largest big pharma payrolls.
"There is nothing that is going to buffer $120 billion in lost revenue," Harte warns. It will be rough. Cultural shifts, strategic shifts in the industry's research may be forced upon it, he says, requiring new R&D agility. Not bureaucracy. Rather than whine about managed care, he says, industry scientists should work with it to find drugs that impact medical costs and patients' ordinary lives.
But pharmaceutical job cuts, he says, could have one silver lining: leaner, more effective organizations. Do you need 40 people on a Phase I team? Or five? "These guys have become so bloated," he says of big pharma. "They don't have the freedom to do it faster." He cites Convergence, a GSK spinout in pain management. That effort, he reports, is being designed to not bear the burden of the parent firm's bureaucracy and lavishly padded corporate culture.
In short, Harte sees pharma facing a transition as dramatic as what happened to the Detroit auto industry. "The next two years are going to be telling," Harte says. His company uses a network of veteran providers to assemble lean, customized teams for clinical trials.
Considering a single year, 2011, IMS Health, a market research firm, has a more conservative estimate of patent-related revenue loss. It projects $30 billion in lost revenues that year. IMS estimates the size of the global drug market to be $880 billion, so a $30 billion hit is nothing to panic about. It's not even a reason for discouraged readers to consider shampooer as a career.
Violating most of the mathematical principles we could think of, we decided to blend the PhRMA, Harte and IMS approaches. Our goal: an estimate of how many research jobs are likely to be eliminated. We wanted a safe, conservative number.
Suppose Harte's $467,000 in revenue per employee is twice as high as it should be, given firms with zero revenues or investor capital. Suppose, too, that the industry will only forfeit $20 billion in 2011 due to expired patents, thanks to quiet, unpublicized deals with generic firms that delay generic product launches. Last, assume only 13 percent of the job losses will be in R&D, given that PhRMA estimates that 13 percent of its employees currently work in that role.
Our Best Guess
With those figures, the trusty ClinPage calculator predicts 11,100 research-related job cuts next year. If that is your life, needless to say, it's still horrible. If you work at Merck, is it time to update your C.V.? You probably already did.
Perhaps coincidentally, our 11,100 number is within a hair's breadth of the 13 percent of the 90,172 research jobs in the PhRMA report. Our 11,100 number is not as dramatic as Harte's estimate of 274,000 jobs to be cut. But it will still be quite painful indeed, even for those who keep their jobs and are asked to do the work of those who depart.
A few unknowns remain. One relates to international migration of jobs. The Challenger data do include U.S.-based job cuts by big firms with headquarters in other countries. But we could not locate exclusively European, Latin American or Asian sources that follow regional pharmaceutical job losses or hiring.
And what about jobs shifting to outsourcing firms? Are people getting fired by pharma finding new jobs at CROs? Yes. OutsourcingPharma has an animation of CRO employment growth. Having said that, the total numbers of people employed by growing CROs remain dwarfed by cuts in the industry at large.d9A2t49mkex
The Challenger data have one especially dark number, the net number of jobs estimated to be added in the pharmaceutical industry this year: 100.d9A2t49mkex