If you put aside the government and nonprofit organizations, the pharmaceutical sector had the dubious honor of topping all others when it came to U.S. job cuts in 2010. Outplacement company Challenger, Gray & Christmas reports that, of the roughly 530,000 jobs eliminated in this country last year, nearly 54,000 were at pharmaceutical firms. Another 28,000 were announced in the health care/products sector.
That may sound rough, but things were even worse in 2009. Pharmaceutical companies were responsible for about 61,000 of the 1.29 million layoffs announced that year. In 2010, the pharmaceutical industry saw only a 12% decline in job cuts. Compare that to the U.S. automotive sector, which had the largest job cuts in 2009 (after government), but saw a 91% drop in 2010.
Little Hiring, Lots of Restructuring and Mergers
Pharmaceuticals also announced very little hiring in 2010 -- less than 2,000 jobs. The flip side is the retail sector, which Challenger says announced about 203,000 additional jobs last year and the transportation sector, which added nearly 64,000 new jobs.
Not surprisingly, two of the main reasons for pharmaceutical job cuts in 2010 were industry consolidation and restructuring. The mega-mergers that dominated the pharmaceutical sector in 2009 resulted in large layoffs a year later. One prime example is Merck (MRK), which acquired Schering-Plough in 2009 and announced 17,500 job cuts last year. Overall, more than 27,700 jobs were lost in the industry due to mergers and acquisitions.
Nearly 23,000 more pharma jobs were trimmed because of restructuring. The remaining 3,000 or so were reportedly eliminated due to site closings, economic conditions, relocations, outsourcing and order cancellations.
Regarding restructuring, the pharmaceutical industry has been bracing itself for years now. Many companies are approaching the so-called patent cliff, when some of their most profitable blockbuster drugs will lose patent protection and face generic competition. At the same time, the pipeline of expected new drugs hasn't yet shown the potential to replace that lost revenue. Pfizer (PFE), for example, will lose patent protection this year on its cholesterol fighter Lipitor -- the world's best-selling drug, with sales of over $11 billion. The company remains on the lookout for what it hopes will be Lipitor's successor.
As the chart shows, the number of layoffs in the pharmaceutical industry rose sharply over the past five years as companies restructured. And a spokesman for Challenger acknowledges that, even though layoffs dropped in 2010, they were still relatively heavy.
But the pharmaceutical sector may still have an upside in 2011. Smaller pharma deals in 2010 could mean fewer jobs lost to M&A this year. Moreover, the industry is now leaner -- much of the downsizing came in marketing and sales, as well as research and development -- leaving less room for further cuts. While the rising trend of outsourcing R&D may not bode well for job growth in Big Pharma, it could create opportunities for research companies, as well as small pharmas and biotechs with exciting pipelines.
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