Pharma gets ruthless as job losses mount across industry

The industry is showing its teeth, as companies have started slashing positions. Ben Hargreaves reviews how the job losses that started earlier in the biotech industry have quickly spread to all areas, driven by unfavourable economic conditions and the desire to save capital.

The pharmaceutical industry experienced a period of rapid growth during the COVID-19 pandemic. Even companies that were not working directly on treatments and vaccines were still able to lend their manufacturing or R&D capabilities to other areas of the industry. The result was that the broader industry saw a boost from the pandemic, and those that had direct success with vaccines and treatments saw even greater benefits.

However, with the virus no longer posing the same threat, many companies are facing a reality where there is a drop in revenue and harder, longer-term realities are biting, such as the patent cliffs facing a number of big pharma companies. This is leading many companies to look to cut costs. Already, this has hit the biotech industry harder and faster than larger companies in the space, resulting in bankruptcies, job losses, and depressed valuations. Now, it appears that the malaise is creeping to almost all areas of the industry – unless the company has developed a weight loss treatment.

Biotechs struggle to recover

The biotech industry underwent this period before other areas of the industry. During the pandemic, the valuation of the biotech industry soared, enabled by a flood of capital that emerged during the same period. As soon as this capital began to dry up, with the changing economic conditions, the former situation became untenable and biotechs were forced to either downsize or to close their doors.

In February 2024, it appeared that the biotech industry had turned the corner, with an industry index, XBI, rising to its highest valuation in two years. However, since that period, this valuation has once again declined and there have been announcements from across the industry of further layoffs. Notable among these was Coherus BioSciences’ decision to dismiss 30% of its staff and CureVac letting 150 employees leave, both occurring in March.

Industry-wide action

However, to suggest that such actions are limited to the biotech space would be false – the sweeping cuts have spread out to impact all parts of the industry in recent months. Unsurprisingly, the companies that experienced the biggest revenue increase during the pandemic are some of the most active in the area. This has seen Pfizer announce repeated job cuts from its US operations since the beginning of the year, including 285 at a New York R&D site, and 52 at a facility in San Francisco. Thermo Fisher Scientific, one of the largest providers of services to the pharma industry, revealed mid-way through 2023 that it would look to cut $450 million in costs because of slowing demand. Linked with this move, the company announced job losses in January of this year, amounting to 74 positions.

The broad scale back is also not limited to those companies that directly profited from the pandemic, with other big pharma companies also downsizing staff numbers in recent months. In April, Novartis stated that it would remove 440 development positions in Switzerland and an additional 240 roles in the US. Only a few days prior, Sanofi also stated that it would simplify its R&D structure, but noted only that an undisclosed number of staff would leave. The same day, Boehringer Ingelheim followed a similar path by announcing that an unspecified number of employees would leave the company.

Pharma facing headwinds

The reasons why such a range of companies are shedding staff is due to a mix of scenarios specific to the pharma industry and also the broader economic climate that is impacting all industries. The biotech industry was hit hard because of the fall in venture capital and financing that companies in the space need to tap into regularly to continue development programmes. Once capital became risk-averse, the industry was faced very quickly with a situation that required drastic action: job cuts, R&D scale-back, and even closure of the business.

For larger companies, this threat does not exist, at least not in the same fashion. The pandemic was marked by increased revenues across many parts of the industry, but also by a pullback in the traditional ways that big pharma companies grow their business, in the form of M&A. The deals that were completed during this time were generally smaller, ‘bolt-on’ acquisitions. With uncertain times, it made more sense for pharma companies to become more careful with their capital to create a reserve for potential times of need, which is another reason why the biotech industry struggled.

With the worst of the pandemic behind, a further hazard to business was created in the form of high inflation. As a result, interest rates have risen globally and any loans that pharma wanted to take to finance M&A would be more expensive; any loans due for refinancing would also cost more. The difficulty arises because the larger pharma companies require a certain amount of M&A to refresh their pipelines, and also to ensure that they do not get left behind in new, emerging areas – the weight loss treatment area becoming a key recent example. For some companies, the need to add new prospects to their pipelines is more pressing than others, as the patents protecting some of the biggest drugs on the market are quickly approaching for companies, such as Bristol-Myers Squibb (Eliquis), Johnson & Johnson (Stelara), and Merck (Keytruda), among others. This need for capital expenditure then has to be balanced with other areas of business, especially if revenues are falling.

The upshot for employees across the industry is that they can find themselves in the firing line when companies are looking at reducing costs. Lowering costs through the closure of underutilised facilities and from employees in areas not considered central to the business are common tactics when revenue is waning or extra capital is needed in other areas of the company. This is of no comfort to anyone who loses their position due to circumstances beyond their control. However, as with patent expirations, this is a regular part of the industry’s ebb and flow, and hopefully will soon be followed by a wave of hiring as conditions become more favourable.