This year is going to be historic for the pharmaceutical industry -- and not in a good way.
According to estimates by the U.K.-based Economist Intelligence Unit, nearly $29 billion in U.S. drug sales will be exposed to generic competition over the next year. Some of these names include Pfizer's (NYSE: PFE ) Lipitor, the best-selling drug in the world, and one that lost patent expiration late last year; Sanofi and Bristol-Myers Squibb's Plavix, the second-best-selling drug in the world; Singulair from Merck (NYSE: MRK ) ; Seroquel from AstraZeneca; and Actos from Takeda.
Pharmaceutical and biotech companies have had no choice in light of these patent cliffs but to begin cutting expenses. Unfortunately, lightening the load isn't so easy for Big Pharma, since pipeline costs are not something that these companies can choose to ignore. So, as often happens when times are tough, employees are getting the axe.
At a time when it's normal to see unemployment tick up as retailers dispose of their holiday help, it's actually the health-care sector that's getting all of the attention for its layoffs. The sheer number of health-care companies announcing layoffs, and in some cases the magnitude of those layoffs, is just staggering. If you don't believe me, have a look at some of the most recent totals:
Percentage of Workforce
|XOMA (Nasdaq: XOMA )
|Human Genome Sciences (Nasdaq: HGSI )
|Dendreon (Nasdaq: DNDN )
Source: IR of each respective company, authors calculations, * = 2011 estimated total
For some of these companies, the layoffs are necessary to reduce spending or simply to ensure survival. XOMA, for instance, announced layoffs totaling more than a third of its workforce two weeks ago and intends to move production to an outside contractor in order to further cut costs. Similarly, Human Genome and its systemic lupus drug Benlysta and Dendreon's prostate cancer drug Provenge failed to launch out of the gate as expected. In order to accommodate the slower-than-forecasted growth from these potential blockbuster drugs, both companies have been forced to shed workers into order to cut costs.
For the larger pharmaceutical names, these cuts are merely precursors to what is expected to be a nightmarish year for patent expirations. In 2010 Lipitor accounted for nearly 16% of Pfizer's revenue, Singulair roughly 11% of Merck's total revenue, and Plavix an astounding 34% of Bristol-Myers' sales. With many of these companies unable to quickly replace these blockbusters, the only recourse available to them seems to be job cuts.
It could be some time before the full extent of the generic effect is known on these Big Pharma names, but it's probably not going to be good. In the meantime, if you're pursuing a career in the pharmaceutical industry, it may not be a bad time to brush up on secondary job opportunities, because many health care companies have their "no vacancies" signs up for the time being.
What's your opinion on this recent wave of layoffs? Is this a classic overreaction by these pharmaceutical and biotech companies, or is this really their only choice? Share your thoughts in the comment section below and consider adding these five names to your free and personalized Watchlist to keep up on the latest news with each company.
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