Industry layoffs surged last year, claiming about 14,000 jobs across biopharma. While many hoped 2024 would be a turning point, workforce cuts have continued and the worst might not be over, according to Arda Ural, EY Americas industry markets leader, health sciences and wellness.
Bristol Myers Squibb recently announced plans to shed 2,200 jobs by the end of next year, including 860 positions in New Jersey. Bayer slashed its workforce by 1,500 and may jettison more as part of a restructuring effort. Other companies such as Takeda Pharmaceuticals, Bolt Biotherapeutics and Novartis have also pulled out the ax in recent months.
The same problems that fueled last year’s uptick in layoffs — drugs moving off patent and cash shortfalls — are still churning the waters, Ural said. And while big pharma layoffs grab headlines, they aren’t the whole story.
Pharma staffing cuts comprise half of the industry’s overall layoffs, while reductions at biotechs and other life sciences companies make up for the rest, Ural said. However, pharma and biotech cuts have different drivers. In particular, pharma companies seem to be casting off ballast to adjust to a new fiscal reality.
“Selling, general and administrative expenses have been stuck at 29% for decades, yet pharma’s research and development as a percentage of revenue has been growing since 2000 from 12% to almost 18% last year,” Ural said. The loss of drug exclusivity can make that equation worse if a company’s pipeline isn’t strong enough to compensate for the losses.
“Obviously, each company has a different story, outlook and portfolio mix. But in general, if you treat the industry as a whole, that's the picture,” Ural said.
Biotech’s headaches are often triggered by a return to earth from the COVID-era investment highs. A 2024 EY Biotech industry report found that 31% of biotechs will run out of money in less than a year.
“About a third of biotechs cannot sustain their operations,” Ural said. “So, what do they do? They have to adjust their cash burn and outflow.”
But not all biotechs are facing the same difficult road ahead.
“While 31% of biotechs have insufficient cash to maintain their operations for more than one year into the future and face a tough road to survive in the current operating environment, the picture is far brighter for biotechs that hold late-stage assets,” the EY biotech report states.
Ural said it’s difficult to say whether laid-off workers are jumping back into new roles within the industry.
“We don’t have a longitudinal tracking capability for these numbers, unfortunately,” he said. But some jobs are more in demand than others. “The skills that are more sought after are digital, AI and market access,” he said.
Adjusting to a new reality
Despite these challenges, there are signs that the workforce is starting to level off as companies adjust their sails and companies eye and upcoming bright spot.
“Innovation is very strong,” Ural said. “I’m very impressed by the quality of the thinking and the science.”
And many new industry jobs could come from the rise of AI.
Typically portrayed as a job-killer, an EY-Parthenon report shows that AI may instead drive hiring in the biopharma industry as it takes on a priority role in drug development.
“AI technologies are poised to cause significant labor market disruptions by automating some tasks and displacing workers, but it will also create new types of jobs and functions within roles across many sectors of the economy that will help offset AI-related job losses,” the report states.
Putting AI to work in biopharma drug discovery and development, commercialization, and back-office automation requires support from staff with specialized skills.
“We are optimistic on the outlook for AI's impact to bring in new talent,” Ural said.
Rather than displacing low-level workers, the technology’s true potential lies in its ability to carry out higher-order thinking roles, according to the report.
“AI taking over and rendering low-skilled jobs obsolete will most likely turn out to be a myth, and advanced economies may initially see a greater labor augmentation potential,” the report states.
This would follow historical trends that saw hiring increase amid a rise in automation.
“Employment levels have consistently risen over the last century, as new technologies often create more jobs than they eliminate,” the report states.
The road ahead
Even so, the deluge of layoffs is likely to continue at the current pace until maybe the second half of the year.
“There are two potential positive triggers we have been waiting for,” Ural said.
The first is a potential move by the Federal Reserve to make long-awaited interest rate cuts. The European Central Bank already moved to cut rates from an all-time high of 4% as inflation finally starts to notch down, but the Federal Reserve has yet to follow suit. Ural predicts those cuts could materialize in the fall, which might turn the tide for the industry. The pause in rate hikes triggered a surge in M&A deals at the end of 2023 and the beginning of 2024, he said. But the industry outlook will likely remain cautious until they materialize.
“Companies expect fiscal policy to shift toward lower interest rates within the next six to 12 months, potentially triggering a recovery in biotech investment,” the EY Biotech report states.
Another wild card is the upcoming November election. While both candidates are known entities with well-understood policy priorities, the potential impact of the election won’t be clear until the votes are counted.
“If you get past those two uncertain moments, I think 2025 can actually be back to normalization. The worst may be behind us at that time,” Ural said.
