Merck & Co. (NYSE: MRK) announced it would rid itself of 8,500 workers, many of whom work in the big pharmaceutical company’s R&D operations. Since the return on research investment at Merck and its peers has fallen sharply, it is almost certain that tens of thousand of more jobs are at risk, and future layoffs within the industry are certain.
The math of the job reductions is simple. Once big pharma companies could count on the release of “blockbuster” drugs, and they could market those drugs for years upon years. Today, as generics seize the market from these giants, and smaller pharmaceutical firms develop treatments, the old way of doing business has become too expensive. The only way for big pharma companies to hold their bottom lines is through cost cuts, which by necessity means layoffs.
Some of these companies are extraordinarily large. Pfizer Inc. (NYSE: PFE) had sales of $59 billion last year. Sanofi (NYSE: SNY) had sales of $46 billion. Roche is nearly as large, as are GlaxoSmithKline PLC (NYSE: GSK) and AstraZeneca PLC (NYSE: AZN). That is only the highest tier of the sector by sales. There are another public corporations just below it.
All totaled, these companies could cut nearly 100,000 jobs, if the pressure on their R&D investments continues. And it will.
Likely no other industry has a problem comparable to the one global big pharma has. Its major products regularly go through a process that, relatively quickly, become obsolete as they lose intellectual property protection and the numbers of rivals rise.
Big pharma jobs also have no chance of coming back. The industry in not like others that shed workers but later replace them as their opportunities rise again in a cyclical fashion. First among these are financial services and massive manufacturing. A look at car companies and banks as they moved into and out of recession offers a great deal of proof for these cases.
Another tragic part of big pharma R&D layoffs is that there are few places for these people to go. Generics firms do not need them. Small pharma companies are not big enough. Drug research expertise does not migrate easily to other big industries with giant employee bases. There are no jobs for these workers on assembly lines or at bank windows. So, these pharma workers are not just laid off in larger and larger numbers. They lack a good chance at another career.