How Managing Decline Is Becoming a Key Skill in the Drug Business

Don't take heart from the news that job cuts in the pharmaceutical business are slowing down. The most horrifying number is buried in the later pages of Challenger Gray & Christmas's annual recruiting report: The drug sector announced hiring plans for just 150 jobs in December 2010, and only 1,948 all year.

That suggests drug company managers need to develop the exact opposite skill set that most other American companies are currently looking for: The ability to cultivate contraction.

The topline of the CG&C report says that the drug business lost 53,636 jobs in 2010, down 12 percent from 2009 when 61,109 positions were cut. That's still heavy bleeding, but coupled with the rest of the data in the report -- which shows the private sector on the verge of adding jobs -- it looks like light at the end of the tunnel. It's not. The fact that the drug business is adding only one job for every 28 it gets rid of tells you that it will be years before the sector sees significant job growth.

That's just the statistical argument. Big Pharma's recession is actually secular -- insulated from the real economy due to its contractual and legal reimbursement rights from governments and private insurers. It's losing revenues (and therefore jobs) not because of the recession but because of the "patent cliff," an historic coincidence in which a large number of companies all have expensive drugs losing their market exclusivity at the same time.

That cliff is what's driving these events:

1,700 recent layoffs at Sanofi-Aventis (SNY).
15,000 layoffs at Merck (MRK).
1,400 layoffs at Novartis (NVS).
4,800 layoffs at Roche (ROG.VX).
19,000 layoffs at Pfizer (PFE).
15,000 layoffs at AstraZeneca (AZN).
840 jobs at Bristol-Myers Squibb (BMS).

So that's the crisis. What, as the Chinese might say, is the opportunity? The coming years will make a certain type of manager more valuable than their competitors: Those with the experience or the talent for managing decline and doing more with less. These managers will occupy a sort of Bizarro World -- as the rest of the country rides the economic upswing and enjoys increases of everything, they'll be rewarded for scrimping, saving and making-do.

I say "rewarded," because managers are managers -- their skill sets are transferable. So unless pharma CEOs pay to retain the people they need to struggle through the crisis, they will go elsewhere.

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