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Pink slips pile up in Big Pharma

We here at ddn are in the business of covering the business side of Big Pharma. But behind every headline touting million- or billion-dollar price tags for mergers, acquisitions and partnership deals, there are the untold stories of collateral damage.

Those stories are coming to the forefront lately as headlines are taking note of the number of pink slips piling up in the pharmaceutical and biotech industries.

According to the U.S. Bureau of Labor Statistics, unemployment in the United States was 9.6 percent in September. The unemployment rate has hovered around that figure for most of this year, but it’s about to gain a few percentage points, thanks to recently announced layoffs in Big Pharma.

According to PharmaManufacturing.com, the unemployment rate in pharmaceuticals and life sciences is estimated at 16 percent. Market research firm Reportlinker attributes pharma job losses to several factors. Besides the obvious ones—the economic downturn, the rising number of uninsured Americans and the impending 2011 patent cliff—the firm notes that action taken by the U.S. government as part of healthcare reform legislation will also impact Big Pharma.

“U.S. healthcare reform is set to improve coverage but this will be at the expense of containing healthcare costs,” Reportlinker says. “Although the pharma industry will benefit from the rise in insured individuals, measures such as the increased Medicaid drug rebate and Medicare donut hole discount will have an immediate negative impact on revenues out to 2014.”

Ed Silver, editor of Pharmalot, points out that these numbers may not tell the whole story, since not all job cuts are disclosed: “Some companies cut staff in dribs and drabs, and therefore are not required to file notices with their state governments. The implication is that job losses are greater than the survey implies.”

It can be argued that many of the layoffs are part of the life cycle of merger and acquisition activity. Consider the following:

  • Last year, Abbott Labs purchased Solvay’s drug business for $6.2 billion. Abbott is now cutting about 3,000 jobs in commercial, R&D, manufacturing and staff operations. The company will also close Solvay’s U.S. headquarters in Marietta, Ga.
  • Bristol-Myers Squibb Co., which recently acquired ZymoGenetics Inc. for about $885 million, plans to eliminate 3 percent of its headcount—or about 840 jobs—in the next few months.
  • After signing an agreement reportedly worth $1 million with the J. David Gladstone Institutes aimed at identifying treatments for multiple sclerosis, Alzheimer’s and other neurological diseases, Danish drugmaker H. Lundbeck A/S said it will cut 50 people from its R&D operations in the United States and Europe.
  • Just one month after agreeing to buy Penwest Pharmaceuticals for $144 million, Endo Pharmaceuticals is said to be in the process of laying off an unspecified number of sales managers and sales reps.
  • And most recently, sanofi-aventis—which in recent months has dominated our headlines with its many multimillion- and billion-dollar deals and plans to bring more companies into its fold—announced it will eliminate about 1,700 job in the United States, or about 25 percent of the company’s U.S. pharmaceutical operations division.

In announcing its recent agreement to acquire King Pharmaceuticals Inc., Pfizer Inc. focused on the “cost synergies” it expects to see from the $3.6 billion deal. According to Pfizer, it will take only three years for the dust to settle on the consolidation involved in the bolt-on acquisition. By then, it will have cleared a substantial patent expiration hurdle.

We’ll bring you the details of that acquisition in our November issue, but until then, what is your opinion of the mounting job losses we are seeing in Big Pharma?

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October 15, 2010 Posted by | M&A activity | , , , , , | 1 Comment