A Pharma Industry in Crisis

It’s "just harder to find a position than ever before.” -- Ed Silverman

Over the last several years, Pfizer, GlaxoSmithKline, and Novartis -- and most other pharmaceutical giants, which once seemed unassailable -- have announced huge layoffs. Drug discovery jobs have disappeared by the thousands in the United States and by the hundreds in Europe as the industry has cut costs in order to adjust to what is widely perceived as the end of the blockbuster-drug era.

“It’s a whole big mess the pharmaceutical industry is in,” says industry journalist Ed Silverman, who edits the Pharmalot blog. “It’s an unfortunate set of circumstances. … The companies have had fewer new drugs in their product pipelines and … at the same time they’re facing expiring patents on the biggest sellers.”

The implications for job seekers, both laid-off employees and new graduates, are dire. “Right now, it’s very, very competitive,” says Chemjobber, the pseudonymous chemistry blogger based in the United States. “Working in the pharmaceutical industry has gone from becoming something that’s easily attainable to … something that is very, very difficult to do.” As the industry undergoes profound changes, job seekers must adapt, too.

CREDIT: Ed Silverman

Ed Silverman

A drying pipeline

For now, the pulse of the pharmaceutical industry is strong. Global drug sales totaled $856 billion in 2010, according to Thomson Reuters’s 2011 CMR International Pharmaceutical R&D Factbook -- an all-time high. But there are unmistakable signs that big pharma is ailing.

According to the Factbook, the pharmaceutical industry discovered and released on the global market just 21 "new molecular entities" in 2010. (A significant number of new drugs each year are derived from already marketed drugs.) That's the fewest this decade, though similar levels were seen in 2007 and 2008.

Major companies were responsible for only seven of those new entities, demonstrating slippage in the traditional dominance of big pharma. Other figures provided by the Factbook bode poorly for the future of the drug pipeline: In 2010, the number of drugs entering phase III was 55% below 2007 levels. Other phases saw similar declines: 53% for phase II, 47% for phase I.

New drugs have always faced long odds, taken a long time, and cost a lot of money to develop. Of every 10,000 newly synthesized substances, between one and two will be marketed -- eventually. The process takes an average of 12 or 13 years. Drug development costs vary, but a reference estimate, from 2005, is $1.3 billion per drug.

And developing new drugs is getting harder. “We probably have already cleared out a lot of the so-called low-hanging fruit,” says Derek Lowe, author of the pharma industry blog In the Pipeline. Meanwhile, new science and technology breakthroughs have proved difficult to translate into drugs. Hopes that combinatorial chemistry, proteomics, and systems biology “would basically ensure that there would be a free flow of targets and drugs” have so far been disappointed, Chemjobber notes. Regulatory and safety agencies, such as the Food and Drug Administration (FDA) in the United States, have toughened their evaluation criteria, raising the R&D attrition rate.

Revenues -- which so far have remained robust -- seem destined to fall, and not only because of the drying pipeline. According to the Factbook, the pharmaceutical industry, and big pharma in particular, relies mainly on long-established products for revenues; just 5% of the $856 billion in 2010 drug sales was attributable to products launched within the last 5 years. Most importantly, the industry is approaching what many people call “the big patent cliff” -- the imminent expiration of a large number of patents, which will allow generic drug manufacturers to produce cheaper versions of blockbuster drugs. In the United States alone, the patent exclusivity of more than 110 products is set to expire between 2012 and 2014, among them 14 blockbuster drugs. “The world’s leading pharmaceutical companies face considerable risk to their revenue streams in [the] next three years,” the Factbook concludes. The global economic crisis that started in late 2007, and pressure from governments and consumers to lower drug prices, aren't likely to help.

Hemorrhaging jobs

Expert observers believe that big pharma is stuck, largely due to a broken drug discovery process. “Everyone’s frantically trying to come up with something because of course the rewards of finding a good drug that meets an unmet medical need … are tremendous still,” Lowe says. But, right now, “no one really knows how to increase the number of clinical successes.” All we really know how to do is to "cut costs on the other end,” he says.

Over the last several years, big pharma companies have been restructuring their organizations to make their operations leaner, through large-scale mergers, acquisitions, and risk-sharing partnerships. Global companies have announced the closure of entire therapeutic lines, R&D sites, and production plants, refocusing their resources on more promising areas. They have outsourced R&D activities to contract research organizations (CROs) and off-shored others to emerging countries such as India and China; on Tuesday, Merck announced its intention to set up a new R&D headquarters, with plans to invest a $1.5 billion in R&D and hire 600 scientists -- in Beijing.

CREDIT: Josh Bloom

Josh Bloom

The result is that, in the West, big pharma employs fewer scientists than before.

Chemists have been hit especially hard as the industry has moved away from small, chemically designed molecules toward large biologic molecules. “A lot of research in the United States, it’s been redirected in the biotech, biomolecule area,” says Josh Bloom, director of chemical and pharmaceutical sciences at the American Council on Science and Health in New York City. “There have been tens of thousands of layoffs of chemists within a 3-4 year period from all the big companies.”

Outsourcing risk

Is anyone in the West hiring? “Certainly, generally it’s much less than it was 10 years ago for many areas of research,” Silverman says, but “it’s not to say that there is no research, there is no hiring.” It’s "just harder to find a position than ever before.”

One source of jobs remains big pharma, which in spite of their high-profile layoffs is still doing a little hiring -- and not only in Asia. “Some companies have closed sites and downsized their U.K. R&D operations due to global restructuring, but others are still investing in U.K. research and development,” Sarah Jones, education and skills manager at the Association of the British Pharmaceutical Industry (ABPI), writes in an e-mail to Science Careers. Jones cites Lilly, expanding its R&D site in Surrey; Napp, increasing its presence in the Cambridge Science Park; GSK, building the Stevenage Bioscience Catalyst; and Quintiles, which recently opened a European headquarters in Reading.

CREDIT: ABPI/Sarah Jones

Sarah Jones

It is “still a highly competitive environment,” Jones says, but “there are still many opportunities for well qualified graduates and postgraduates.” In the United States, Allergan, the producer of Botox, last month announced a new R&D facility in New Jersey that would employ several hundred people over the next 3 to 5 years.

But many believe that as big pharma looks for ways to reduce its costs and exposure to risk, the biggest area of growth will be in small pharma -- and biotech. “It’s my guess that what we’re seeing is a reshuffling of drug discovery out of the really big organizations … and into the smaller companies,” Lowe says. “That is where any job growth is likely to be.”

Another way big pharma is reducing its costs is by working with CROs. Chemjobber says such organizations have been absorbing a significant proportion of the chemists laid off by big pharma. Some new kinds of collaboration between CROs and big pharma also seem to be emerging. Last August, Albany Molecular Research Inc., a CRO, announced that it would hire more than 40 synthetic chemists by the third quarter of 2012 to help Lilly’s drug discovery efforts. The new employees will work onsite at Lilly’s headquarters in Indianapolis. Many CROs are also conducting toxicology experiments and clinical trials for the industry, says ABPI’s Jones, so those areas are likely to see strong hiring.

Another place where scientists may find opportunities is in academic labs, since the industry has been ramping up partnerships with academia. “If you’re looking for a compound, you can find it [in] many different places now. It may still be discovered within a large company, but it’s probably more likely to be found in a small or middle-sized company or even in a university setting,” says Philip Mayer, President of the American Association of Pharmaceutical Scientists. “My bet is that it’s probably still a pretty stable overall job market. It’s just … the configuration of those jobs that has changed.”

Phil Mayer

CREDIT: Philip R. Mayer

Toward a new pharmaceuticals industry

How long the crisis will go on is a matter for speculation. There are some encouraging signs. FDA last month announced that it had given the green light this year to 35 new drugs never approved before on the U.S. market -- the second highest number of approvals over the last decade, just below the record number of 37 in 2009. This is partly due to an accelerated approval process; still, many see it as an unexpected and welcome cushion for the companies in the face of expiring patents. Some new approaches to drug discovery, like the use of computer-assisted design and biotechnology, may be starting to deliver on their promise. Last month, researchers at Yale University published work on the synthesis of an unusually potent inhibitor of HIV reverse transcriptase. Biologics are starting to clear FDA hurdles.

Whether big pharma will ever come back is another open question. “Have companies cut more than they should? I suspect many of them have,” Lowe says. “I think some people are waiting for some of the companies to slap their foreheads and go, ‘Oh my gosh, we messed up. We actually need to hire back a few thousand researchers.’ ” But, he says, that's not likely to happen. “They may do a little hiring back, or they may do a little less outsourcing, but I don’t think it’s ever going to get back to the state it was 15 or 20 years ago.”

Chemjobber adds, “The era of people working for a large company for 20 to 30 years is over.” He sees the R&D employees of the future working for a series of smaller companies. “I expect that unfortunately some of the large American companies or the large multinational companies … will ultimately collapse,” with newer, smaller companies taking their place.

Bloom is less optimistic. “All of these companies are saving tons of money, or at least they think so, by shipping off their research and their clinical trials to Asia and then everybody else is following them, much like it has been done with other industries in this country which don’t exist anymore,” Bloom says. “I think we’re just on our way to becoming one of those.” He adds that he would discourage anyone from pursuing a career in the industry.

As the pharma industry we once knew struggles to survive, the demand for new drugs remains, with many important unanswered scientific questions. “The amount of our ignorance about important questions of disease and physiology is just staggering, so you would have to think that the opportunities to do something about these things are also staggering,” Lowe says. “It’s not like we’ve run out of diseases to treat. It’s not like we’ve run out of things to try. It’s just that the amount of money and time it takes to try them right now is getting unsupportable.” Given the human need and the financial incentives, Lowe believes that “we’re eventually going to find some different way to do this,” he adds. “It’s just the details and the path for getting from here to there; it’s going to be very wild and rocky.”