Alex Philippidis Senior News Editor Genetic Engineering & Biotechnology News
2015 Allergan Layoffs Surpass Last Year’s Total, Yet Deals Aren’t the Only Factor in Job Cuts
The pace of layoffs in biopharma may be the same as it was a year ago, but it is expected to pick up in the coming months. Biopharmas are already in consolidation mode, and they will cut jobs and curtail operations more and more as they struggle to recoup the costs of associated with a wave of mergers and acquisitions.
Between January and July of this year, pharmaceutical employers announced the elimination of 6,334 jobs—up 1% from the same period in 2014, according to the latest monthly Job-Cut Announcement Report by Challenger, Gray & Christmas, released August 6.
More layoffs loom this year and into next, however, given the ballooning number of M&A deals in biopharma. The Zephyr database of M&A, IPO, private equity, and venture capital deals recorded in its monthly Biotech Report that 488 M&A deals had been struck between January and June 2015 (the most recent month available), up 18% from 414 a year earlier. The dollar value of those deals nearly doubled, ballooning 81% to $77.219 billion from $42.564 billion, the corresponding 2014 figure.
Wayne F. Cascio, Ph.D., distinguished professor and Robert H. Reynolds Chair in Global Leadership at the University of Colorado Denver, told GEN that M&As are leading indicators of job cuts to come in about six to nine months.
“The types of jobs being cut really depend on the strategy of the organization, and how mission-critical certain departments are to achieving a firm's objectives,” Dr. Cascio said. “Some firms are cutting R&D, some are cutting salespeople, and some are cutting administration. In my experience, there is no ‘one size fits all’ in the biotech industry.”
The more mergers and acquisitions in the works, the more companies are likely to trumpet the potential to achieve cost savings through greater efficiencies in operations and other synergies.”
“You just don’t need duplicate headquarters. You don’t need operations—say warehouses or operations in one form or another—that cover the same area. So you get some condensing,” Challenger, Gray & Christmas CEO John Challenger remarked. “In a market like this, where generally pharma and the economy and the job market are doing well, it means that you get some extra volatility.”
Allergan Cuts … and Adds
That extra volatility can be seen at Allergan, one of the busiest biopharma M&A players in recent years. Allergan, which was known as Actavis until the company renamed itself during one of its recent acquisitions, has eliminated at least 1,542 jobs in four states and Iceland during the first half of 2015, based on a GEN spot-check of notices filed with state labor agencies under the federal Worker Adjustment and Retraining Notification (WARN) Act, as well as news reports. That’s more than all of last year (1,344), and more than all of 2013 (813). Including all those jobs, Allergan has eliminated at least 3,699 positions over the past 2-1/2 years, the review showed.
From January to June 2015, most of the layoffs occurred in California, where the number climbed to 666, driven by cutbacks at the Irvine, CA, headquarters of the former Allergan. Next hardest hit was New York State, where the company eliminated 473 jobs linked to another Allergan-acquired company, Forest Laboratories. Cuts also affected a manufacturing plant in Iceland (300) and sites in Illinois (70) and Maryland (33).
In the 12-month period ending June 30, Allergan eliminated 2,345 jobs, more than double the 976 tallied over the previous 12-month period.
Yet Allergan—which at deadline had not responded to GEN emails seeking to discuss its restructuring and workforce size—has actually grown its workforce in recent years. The company reported having approximately 21,600 employees as of December 31, 2014, according to a Form 10-K regulatory filing. This workforce number, the most recent disclosed by the company, exceeded the 19,200 figure for December 31, 2013, as well as the 17,700 figure for December 31, 2012.
The numbers also reveal shifts in how Allergan and predecessor Actavis deployed their staffs. Between 2012 and 2014, quality assurance/quality control positions showed the highest increase, climbing 60%, reaching 2,400. Next highest was sales jobs, rising 22% over 2012, reaching 8,500 last year.
Manufacturing fluctuated, rising from 6,900 to 7,765 jobs in 2013, before ebbing to 7,600 in 2014. And R&D employment fell from 2,000 jobs in 2012 to 1,775 the following year, before rising in 2014 to 2,070.
The largest drop was, not surprisingly, in administration, where employment fell from 1,150 jobs in 2012 to 935 jobs in 2013—a 19% reduction—before inching up to 950 jobs in 2014.
Addressing analysts on the company’s quarterly earnings conference call on August 6, Allergan CEO and president Brenton L. Saunders said future blockbuster M&A is likely to occur after the company completes its planned $40.5 billion sell-off of its generics business to Teva Pharmaceutical Industries.
“That doesn’t mean we couldn’t engage in analysis or discussions or other things like that with [others if they were] interested in doing a deal with us, or [if] we were interested in doing a deal with them,” he added, according to a webcast posted on the company’s website.
Allergan is hardly alone among biotechs, pharmas, and tools/tech companies in reducing expenses by slicing headcount.
One company whose layoff plans this year have called for jettisoning more than 500 jobs is GlaxoSmithKline. GSK disclosed plans in May to eliminate 350 consumer healthcare positions in Parsippany, NJ, a month after saying it will axe 274 in the same unit in Coraopolis, PA. GSK now holds a majority stake in a consumer-products joint venture with Novartis.
So far in 2015, GSK said it will cut 180 positions in Durham, N.C., 150 in Philadelphia, and all 27 staffers at a Hamilton, MT, vaccine facility. But the company also said it plans to add 600 jobs at a new vaccine research center in Rockville, MD, and consolidate its R&D sites into two hubs—one outside London, and the other in Upper Providence, PA. At these hubs, workforce levels are projected to more than double over four years. With respect to the latter hub, in comments to the Planning Commission of the Township of Upper Providence on May 13, GSK site operations director Daniel O’Leary said, “By 2019, their goal is to employ 3,200 employees in this same space,” according to minutes posted online.
Another company planning layoffs is Parexel. On June 23, the company said it will eliminate 850 jobs, 5% of its workforce, but didn’t disclose what locations would be affected or the timing of cuts.
Looking beyond M&A
M&A is an important factor—but not the only one that explains the shrinking of biopharma workforces, Bernard Munos, founder and “chief apostle” of the InnoThink Center for Research in Biomedical Innovation, told GEN. InnoThink is a consultancy dedicated to bringing evidence-based innovation models to the pharmaceutical industry.
He cited cost-cutting by big pharmas eager to reverse falling R&D productivity; the growth of collaborative research; economic challenges ranging from the patent cliff to rising branded drug prices; and pressure by governments worldwide to contain those expenses.
“Historically, clinical research was very resource intensive. You had this whole organization in each pharma that had been built in order to conduct clinical trials at hundreds of sites all around the world. Now, you’re seeing new research platform emerging, where much of the manpower will really not be needed,” said Munos, an MBA who is also a senior fellow with FasterCures, a center of the Milken Institute that champions policies aimed at speeding up and improving the medical research system.
“It’s going to have far-reaching implications across pharma—indeed, across the entire healthcare industry,” Munos emphasized. “Think about the impact that it’s going to have on the hospital industry. That transformation is taking place because it needs to happen, because we need to take a major chunk of the cost out of the business if we hope to make drugs affordable.”
Legacy big pharmas, he added, face a dilemma: “On the one hand, the board of directors might find it very difficult to let go of that business because of the profitability. On the other hand, it’s necessary for growth, because the business is shrinking and will continue to shrink. At what time do you draw the line?”
In a commentary published May 6 in Science Translational Medicine, Munos noted that the changes in drug development have forced companies to shift from remote research campuses to facilities in cities with strong research universities and a growing presence of smaller biotechs.
He cited five successful examples of such cities. One is Geneva, where a former Merck KGaA campus gave way to the public-private Campus Biotech, with the goal of growing companies staffed by the company’s displaced researchers and backed by a €30 million (about $33 million) venture fund created by the company. Boston/Cambridge, London, Montreal, and New York City have also grown their biopharma workforces by promoting innovation along the new model, according to the commentary.
“The research model has changed,” Munos said. “It’s no longer an activity where everything is being done at home within the walls of your lab, which was the underlying premise of all those big facilities. Therefore, the old infrastructure was basically no longer suited to accommodate the needs of the new drug R&D enterprise.”
JobWatch is GEN’s periodic review of biopharma job news and trends. To suggest a story idea, please contact Alex Philippidis via email at email@example.com or via Twitter at @AlexWestchester.