Patent cliffs and stormy market conditions have many biopharma leaders scrutinizing spending and making cuts. For some companies, that’s meant layoffs.
Some 120 biotech companies let employees go in 2022, said Arda Ural, EY Americas industry markets leader for health sciences and wellness. The early months of 2023 have brought even more layoffs as companies look to outrun cash shortfalls. On the list are Editas Medicine, which recently cut a fifth of its workforce; G1 Therapeutics, which slashed its workforce by 30%; and EQRx, which made an 18% reduction. Larger pharma companies have not been exempt. Merck KGaA, Amgen and Sanofi have also announced layoffs this year, and more will likely follow as financial pressures continue to rise and pipelines struggle to keep up with exclusivity losses, Ural said.
However, the biopharma industry probably won’t be able to simply prune its way out of this rough spot, which looks something like the one it experienced back in 2010, Ural noted. The workforce is already lean, and a strategy of hacking away at jobs runs the risk of rending not fat, but the muscle propelling an increasingly complex future pipeline. Instead, Ural argued companies will need to take an introspective approach, identifying their priorities and pinpointing where they want to invest to better position themselves for the future.
A steady drip of layoffs
Layoffs may be steady, but overall, reductions have affected only a fraction of the industry’s workforce.
“Those are obviously scary, big sounding numbers, but they are in aggregate less than 1.5% of the total U.S. biopharma workforce of 1.14 million,” Ural said, pointing out that these numbers don’t include layoffs in Big Pharma.
Unlike the tech market where mass layoffs have been correcting for what some say was overzealous hiring during the pandemic, the pharma and biotech workforce remains relatively small.
Consider that Walmart today employs some 2.3 million people worldwide, but the entire biopharma workforce is less than half of that number, Ural said.
“We’re a small but highly educated and expensive workforce,” he said, which leaves little room for additional cuts.
Still, even before this year, the industry had already made deep reductions to its sales force. The total sales force was roughly 100,000 people in 2005, or 12% of the workforce, but it’s down to 58,000 today, or 5.1% of the workforce, he said.
“Sales force was the canary in the coal mine,” Ural said. “(But) from just a numbers game perspective, (cuts to the) sales force (are) not enough to mitigate the pressure on the top line from a cost perspective.”
Looking to other areas for layoffs, however, brings additional complications.
Manufacturing, R&D and distribution are now drivers for much more complex molecules, such as monoclonal antibodies and antibody-drug conjugates, which are difficult to innovate, develop and manufacture.
“Outsourcing is certainly happening. The digitalization of the back-office processes is just starting, (and) it’s going to pick up speed.”
Industry markets leader for health sciences and wellness, EY Americas
“That creates a significant challenge for the industry to say ‘I'm going to just simply take the hatchet and then ax the extra sales force here or R&D there,’” Ural said. “This is creating a dilemma for which there is not an easy answer.”
Jobs in the pharma industry require advanced degrees, not just on-the-job training, and losing highly-skilled workers may put companies in a more precarious position when it comes time to rebuild. And ultimately, they can’t be the only solution.
Other cost-cutting strategies
Instead, company leaders should focus on efficiency and identifying their top priorities.
“The question becomes: What do you want to do in-house (and) what do you want to outsource? That's more of a buy-versus-build decision,” Ural said. “Should you go ahead and hire all these resources in-house, or would you rather improve your alliances, strategic partnerships and joint ventures?”
Company leaders should ask the same questions when it comes to other aspects of the business — from manufacturing to back-office operations.
“What am I best at, versus what can I outsource, offshore or get somebody else to deliver for me?” Ural said.
Companies are already making that shift.
“Outsourcing is certainly happening. The digitalization of the back-office processes is just starting, (and) it's going to pick up speed,” Ural said.
Finding the right formula can help the company achieve a healthy balance.
“You need to adjust your cost to the scale you have,” he said, adding that this year will likely mark a critical time for companies to make needed changes. “I think this is the inflection point for the industry.”
This reckoning is occurring a few years later than it should have because of COVID-19, he said. The pandemic and the infusion of cash into the industry that accompanied it delayed this correction.
Despite those challenges, the industry has one positive trend on its side, Ural said: Innovations are making headway. But are they big enough, and coming fast enough to help the industry outrun these financial pressures?
Success or failure in the future will likely be determined by how willing companies are to recognize the need to make changes and take action to adapt to this new reality.
“I think anyone who's looking at their projections for the next three to five years is seeing that picture,” Ural said. “The writing's on the wall. The question is: How much change management will it take to act? Are you going to act out of choice or out of necessity? Can you get ahead of this trend before this trend gets ahead of you?”