Swinging The Ax At The Drug Companies

Two big mergers are now shaking out in the drug business: Pfizer/Wyeth and Merck/Schering-Plough. Employees at the latter have told me that they're still waiting for the cuts that they know have to come, but the Pfizer and Wyeth people are facing them right now. And the size and shape of those layoffs, and others around the industry, is not encouraging.

In chemistry, for example, which is my field, Pfizer started off with about 900 chemists. The Wyeth merger added about 350 more, but no one in either company expected the new entity to stick with a head count of 1250. After all, how do you make these mergers work -- if indeed you do -- without getting rid of people? But Pfizer's latest cuts appear to be taking the chemistry staff down to below the pre-merger level, which is unexpected.

One of the points of merging drug companies is supposed to be that you have more resources to bring to bear on the notoriously difficult business of drug discovery. So how does that work with fewer scientists? Pfizer's balancing that equation by outsourcing more routine work to contract scientists in China and India, who are almost certainly not included in those head counts.

This is a process that's been going on for several years now in the US pharmaceutical industry. Outsourced chemistry started as a way to augment a company's research growth plans. Then US-based scientists began to complain that companies weren't hiring as many people as they used to, because more work was being sent out. Recently, though, outsourcing has been used to actually cut staff, and the Pfizer merger is just the most dramatic example.

A recent round of layoffs at Johnson & Johnson's research labs fits into this picture as well. The company seems to have largely cleared out non-PhD staff in this round of cuts, and that's a new thing in this business. Traditionally, B.S. and M.S. degree holders have been thought to have more secure jobs, since they cost less and are involved more at the bench level, cranking out compounds and assays. But J&J seems to have decided that the lab-bench part of the business can often be done more cheaply overseas, and is just holding on to their more senior people to keep an eye on the contract workers.

Even before the Wyeth merger, Pfizer was talking about separating its chemists into drug designers and drug producers. The former would be PhDs in their offices, coming up with new ideas and looking over the latest assay data to decide where to go next. The latter would be the people actually running the chemical reactions and making the new compounds. But it looks like those two groups are not going to be down the hall from each other; they're going to be on separate continents.

Research scientists in the drug business are going through what may be their worst and most uncertain period ever. It would be easy to blame greedy executives or low-cost foreign labor for all of the problems, but since when are we supposed to sound like the auto industry? The real problem is the same as it's been for some years now: we're not producing enough good new drugs, and we're spending too much money to discover the ones that we have. Until we find a way out of that impasse -- and speed the day -- drug companies are going to reach for whatever low-cost solutions come to hand. The real worry is whether these solutions, in the long run, are going to damage the ability of the industry to work its way out of the bigger problem.