Painful Pharmaceutical Industry Downsizing was Avoidable

Layoffs, divestitures,  and closing of facilities continue in the pharmaceutical industry and I don’t believe we are even close to seeing the end.  This is horribly painful and almost inhumane in some cases.  Big Pharma executives could have and should have seen that their business model, product pipelines, and more importantly, their balance sheet projections were not sustainable in the evolving healthcare market that was becoming increasingly managed, more cost conscious,  and more demanding for innovation, clinically meaningful differentiation, and proof of value (think about the recent public review of Provenge®).

I believe the current layoffs are in large part a result of Big Pharma mismanaging the cash they were generating over the past two decades.  Innovation in R & D was not critical for market success when you could “tweak molecules” and drive sales of even marginally differentiated products with aggressive, and wastefully expensive marketing and sales tactics.  Efficiencies in operations were not a priority when you had so much cash coming in that the modest  savings generated by pseudo cost reduction programs seemed inconsequential and not worth the effort.  And despite laboring through annual departmental political battles for headcount requests, cash rich Big Pharma continued to add staff while still delivering Wall Street acceptable operating profits.

You can’t blame the economy for historically bloated operating expenses, diminished R & D productivity, or the billions of dollars spent on litigation, fines and settlements for questionable marketing and sales activities.  The patent cliff and the increasingly managed evolving new healthcare market were not only predictable but their impact could have been mitigated had executives worried more about long term strategies rather than focusing on meeting quarterly numbers to appease Wall Street and ensure their own personal financial security.

But now Big Pharma has no choice. There is no way for the slowing revenue growth to support the expensive, inefficient operating infrastructures they have accumulated over the last several decades.  Unfortunately, and even unfair perhaps, this means their front line employees will bear the brunt of the mismanagement.  Even more unfortunate, is the loss of jobs at Big Pharma at a time when unemployment is at an all time high and the global economy is struggling to recover.

Even without 20/20 hindsight, I believe the current situation was avoidable.  Had Big Pharma pursued innovation in the mid-1990’s rather than relying on “tweaking chemistry” just to get products to the market, managed their expenses when cash was plentiful, and had the foresight to begin adjusting their strategies and workforce for the evolving new healthcare market rather than trying to be the biggest Big Pharma you would not be seeing the layoffs we have been experiencing.

So what does Big Pharma need to do to make sure they realize the benefits of this painful but necessary downsizing?  We’ll discuss that in the next post. mike@pharmareform.com

  • Howard

    Sad but so true. I think it was also called ‘Empire Building’…

  • Jackie

    Big Pharma sucks. It’s a dying business like tobacco. Over bloated pricing has
    killed the industry. Why buy brand when generics are the way to go?

    Pharma Advertising agencies are the biggest losers. Selling over bloated ad
    campaigns for an industry (doctors), who only really need spec and trial result
    info, not multi-million (billion) dollar campaigns to sell over-priced drugs!

  • http://www.pharmareform.com Mike Wokasch

    Jackie,
    First, if you have followed my posts you will have noticed I believe the pharmaceutical industry must change. And, while I can understand your frustration here is something to keep in mind. There are tens of millions of patients suffering from hundreds of diseases for which there are no effective generic drugs. We need a different, healthy pharmaceutical industry to find and develop these new treatment options. mike@pharmareform.com

  • http://smittysmith2@me.com Andy

    I’m glad I found this blog. I totally agree. In addition, the race to be the biggest has resulted in the industry’s relying on the marketing of products that are marginal at extraordinary cost. They have also staffed their sales teams in such a way that unnecessary, headcount redundancy is the rule in almost every market. While seeking share of voice, the industry has diluted the effectiveness that any of the front line people are able to produce. This practice has also diverted critical dollars from research and development.

  • http://www.pharmareform.com Mike Wokasch

    Andy,
    Thank you for leaving a comment and contributing to the discussion. Much appreciated. mike@pharmareform.com