Big pharma proves that oncology pays as workforces shrink

Bristol-Myers Squibb has come out on top of an analysis of efficiency in big pharma. Being in immuno-oncology might have helped – but so might aggressive job cuts.

Other data

Want proof that oncology pays? Look no further than sales per employee, a ratio that has improved dramatically over the past decade at cancer-focused big pharma companies.

This measure of productivity is far from the end of the story, of course – a substantial shrinking of its workforce has given Bristol-Myers Squibb a big boost, for example. But it is noticeable now that on this metric the world’s biggest drug makers have generated dramatically different performances, a fact that investors will find hard to ignore (see analysis below).

When looking at this analysis it should be remembered that comparing the sales per employee across companies is never straightforward, even among firms that belong to the same industry. Corporate structure and strategic focus vary immensely, and this can have a big impact on swing factors like staff numbers.

The conglomerate Johnson & Johnson, for example, is a very different beast from a focused drug developer like Abbvie. And those with a general medicine focus will tend to have a larger sales force than those operating in speciality niches, although to a certain extent all big pharma companies have been moving away from the “white pills and western markets” structure.

Slimming down

Bristol-Myers Squibb is a case in point: it has trimmed its workforce more heavily than any other global drug maker over the past decade, as primary care blockbusters like Plavix and Pravachol fell to generics.

Bristol has also stayed away from any employee-boosting large-scale M&A, so the improvement in its sales per employee ratio cannot solely be put down to its focus in recent years on immuno-oncology. However, it is notable that Merck and Roche – two other companies dominant in cancer – have also improved on this measure of productivity over the past 10 years.

This is not something that all companies have managed, however. The management teams of Sanofi, Glaxosmithkline and Astrazeneca have presided over deteriorating sales per employee ratios over the past decade, though these firms too have taken huge hits to their top lines from big patent expiries. The difference is that they have not cut staff in proportion to their sales declines.

Looking at staffing across big pharma, it is interesting to see how static the numbers have remained in recent years. For all the talk of outsourcing R&D and slimming down sales forces, these trends have not caused substantial shifts in employee numbers, over the last five years at least.

And, even though big pharma as a whole shed 55,500 staff last year, percentagewise this is flat for a grouping that employs almost 100 million people. These companies are huge employers, and it takes a lot to move the needle.

In any case, management presumably prioritises initiatives to improve the discovery of new medicines, and this will ultimately boost the top line. Cancer and immunology are two areas that have seen huge success in recent years, clinically and commercially, and this could explain why companies like Merck and Roche have performed so well in this analysis.  

Of course, all of this assumes that management works to improve the sales per employee ratio. Many claim not to consider this important, though it can be useful for investors looking to track performance or compare across peer groups.

However, it would be hard to argue that companies should not be striving to increase the ratio, especially with the US biopharma market looking like it will only become tougher. Unfortunately for employees, this might mean more job cuts.

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