Big pharma becoming a smaller employer

The reporting season for the pharma majors has been littered with references to how the US healthcare reform bill will affect businesses in the future, with some clearly more exposed than others. However in reality this has been an industry in a state of flux for some years now, with major rationalisation programmes and refocusing of strategies underway.

These programmes have inevitably involved job cuts, and most pharma majors have announced that employee numbers, in the west at least, will be heading down (Lilly finally bows to patent cliff pressure, September 15, 2009). However, a look at data from 2009 annual reports reveals that at the same time as these layoffs were occurring, buying sprees embarked upon by players such as Sanofi-Aventis and Abbott Laboratories last year meant employee numbers across the big pharma peer group did not dip as heavily as they might have done (see tables below).

Big pharma employee numbers
2005 2006 2007 2008 2009 08-09% 04-09%
 Pfizer  106,000  98,000  86,600  81,800  116,500  42%  10%
 Johnson & Johnson  115,600  122,200  119,200  118,700  115,000  -3%  -1%
 Sanofi-Aventis  97,181  100,289  99,495  98,213  104,867  7%  8%
 Merck & Co  61,500  60,000  59,800  55,200  100,000  81%  63%
 GlaxoSmithKline  100,728  102,695  103,000  99,000  99,913  1%  -1%
 Novartis  90,924  100,735  98,200  96,717  99,834  3%  10%
 Roche  68,128  74,372  78,604  80,080  81,507  2%  20%
 Abbott Laboratories  59,735  66,663  68,000  69,000  73,000  6%  22%
 AstraZeneca  65,300  66,800  67,400  65,000  62,700  -4%  -4%
 Eli Lilly  42,600  41,500  40,600  40,450  40,360  0%  -5%
 Bristol-Myers Squibb  43,000  43,000  42,000  35,000  28,000  -20%  -35%
 Amgen  16,500  20,100  17,500  16,900  17,200  2%  4%
 Schering-Plough  32,600  33,500  55,000  51,000  0
 Wyeth  49,732  50,060  50,527  47,426  0
Total  949,528  979,914  985,926  954,486  938,881  -2%  -1%
annual increase/ (decrease)  30,386  6,012  (31,440)  (15,605)

Clearly, there are limits to the conclusions that can be drawn from this top-line analysis. For example a look at how employee numbers in different regions has changed over the last five years would no doubt reveal the shift in focus towards emerging markets.

“You have to look behind the numbers to see what’s really happening,” comments Pamela Spence, UK head of life sciences for Ernst & Young. “This is an industry that’s currently delivering significant rationalisation programmes while at the same time seeking to capitalise on disproportionate growth opportunities in certain geographies. It is also realigning itself to areas of high unmet medical need which drives different competencies and skill sets.”

What is clear from these numbers, however, is the impact of the mega-mergers, between Pfizer and Wyeth and Merck & Co and Schering-Plough.

Pfizer revealed in its annual report that of its 116,500 employees at the end of 2009, 74,000 were legacy Pfizer staff. This in itself illustrates how sharp a focus the US company has had on efficiency, as in 2008 it employed 81,000 staff, implying the loss of 7,000 staff in one year, a considerable programme of cuts.

No doubt its newly inflated payroll will slim down again this year.

By region

Sanofi-Aventis is rare in providing a breakdown of employees by region and function. While its total staff figure went up last year, reflecting acquisitions such as Zentiva, in the previous years of declining figures this unsurprisingly was felt in sales, and mainly in the US.

Novartis also breaks down employees by geography and its figures echo this theme, with employees in the US disappearing and appearing in regions such as Africa and Asia.

The rationalisation programmes that have been announced reflect a need for the industry to become more efficient and streamlined. Operating models need to be simpler, sales forces redesigned with greater emphasis on delivering value to payers and reduced emphasis on visiting doctors in western markets, according to Ms Spence.

“The other dynamic is where growth in the industry is coming from. Developing markets present the greatest opportunity for growth and innovation is being narrowed into specific areas where payers are most agreeable to high levels of reimbursement. The whole industry is therefore changing where it needs to focus its employment resources,” she says.

Another analysis

Still, although there is no doubt a big shift occurring in who the big drug developers are employing and where, it seems more likely that employee numbers will edge lower over the next few years, rather than climb.

Some would argue that this focus on efficiency is well overdue, and the table below reveals that sales by employee has been rising across the big pharma peer group over the last five years. Again, this is a metric with caveats, as the very different business models of these companies means their demands for staff will vary greatly.

However, encouragement can probably be taken from the fact that this measure has been improving across the board, aside from the mega merger candidates, which will probably catch up as staff numbers are reduced.

Ultimately, however, the real measures of success for these companies is bringing new drugs to market, and making a profit for their investors. How they have been performing on these metrics is another analysis entirely.

Sales by employee analysis
2009 group sales ($bn) 2009 sales by employee ($) Change in sales by employee 2005-2009
 Amgen  14.6  851.3  +13%
 Bristol-Myers Squibb  18.8  671.7  +55%
 Roche  45.3  555.6  +33%
 Eli Lilly  21.8  541.0  +57%
 Johnson & Johnson  61.9  538.2  +23%
 Novartis  45.1  451.8  +38%
 GlaxoSmithKline  44.4  444.4  +14%
 Pfizer  50.0  429.3  -4%
 Abbott Laboratories  30.8  421.4  +13%
 Sanofi-Aventis  40.8  402.3  +15%
 Merck & Co  27.4  274.3  -23%

Share This Article