Patent cliffs and other factors may lead other large drugmakers to embrace similar cost-cutting measures, experts tell BioSpace.
During the first quarter of the 2024 earnings season, large drugmakers Bayer and Bristol Myers Squibb announced thousands of layoffs in two of the largest workforce reductions so far this year. Coming off years of upheaval in the biotech and pharma sectors, will this be a temporary bump in the road or the beginning of a significant wave of Big Pharma layoffs?
In late April, BMS announced a sweeping “strategic productivity initiative” intended to generate approximately $1.5 billion in cost savings through 2025, including eliminating approximately 2,200 jobs this year while prioritizing the development of its key growth brands. BMS’ restructuring efforts come as the pharma sustained a 6% drop in Q1 sales of its lung cancer therapy Opdivo.
Meanwhile, Bayer just announced a headcount reduction of around 1,500 positions, mostly in management, as the company was hit with a slight drop in sales and lowered its full-year earnings outlook. The layoffs are meant to help Bayer hit its target of €500 million ($540 million) in sustainable cost savings in 2024 and €2 billion ($2.16 billion) in 2026.
Graig Suvannavejh, the senior biopharmaceuticals and biotechnology equity research analyst at Mizuho Americas, told BioSpace that Big Pharma has to show earnings growth, and one way to do that is by increasing revenue or cutting costs.
As the larger drug companies look at their five-year forecasts, Suvannavejh contends, “they’re saying to themselves, well, we don’t want to say to investors that our earnings are going to be flat for the next five years because who would want to invest in a company with flat earnings? What do you do? You lay off people.”
Another potential challenge looming on the horizon is patent expirations for large drugmakers. These include BMS’ anti-coagulant Eliquis and the cancer treatment Opdivo, which will both expire in 2026 and Bayer’s blood clot prevention drug Xarelto, which is set to expire in August this year.
“For many of the largest pharmaceutical companies, they’ve got really big patent expirations or losses of exclusivity,” Suvannavejh said.
Large Players, Big Problems
While Bayer and BMS have not provided additional details on their job cuts, other actions by large drugmakers provide a window into how they may proceed.
Last year, Pfizer launched a cost-cutting initiative toward generating around $3.5 billion in savings through 2024, including an unspecific number of layoffs. The pharma axed 200 employees from its Kalamazoo, Michigan, manufacturing plant that produced its COVID-19 products. Pfizer also made around 500 cuts at its facility in Sandwich, U.K., 120 in Washington State and 285 at its campus in Pearl River, New York, among other layoffs in Ireland, Connecticut, North Carolina and Colorado.
Meanwhile, Novartis announced in April that it is continuing its layoffs as it plans to eliminate around 680 jobs in its product development sector over the next two to three years. According to Reuters, around 440 jobs in product development are based in Switzerland, while another 240 are in the U.S.—but these are separate from a restructuring that could result in the loss of around 8,000 jobs.
A Novartis spokesperson told BioSpace at the time that many jobs will be moving to other “hubs over the next two years and [the company] will have a 1% to 2% reduction of its global workforce.”
Aurojyoti Bose, the lead business fundamentals analyst at GlobalData, told BioSpace that several companies initiated layoffs in 2023, which have continued into 2024.
“These layoffs affected employees across various departments such as sales, research & development and product development. Companies implemented these job cuts as part of strategic restructuring efforts aimed at enhancing margins,” Bose said in an email. “Reasons cited for the layoffs included poor sales performance, financial losses, unsuccessful clinical trials, a shift in focus towards specific areas and the closure of facilities.”
As for why the companies might be seeing financial losses, expiring patents are a big factor. Between now and 2030, blockbuster drugs are set to fall off patent, putting tens of billions of dollars in sales at risk. Certainly, this factor is on the minds of Bayer executives, with the company warning in its Q1 financial results that the company is already feeling the pressure from generic competition for Xarelto. CFO Wolfgang Nickl said Bayer is expecting Xarelto’s headwinds to increase throughout 2024, with year-on-year sales declines over the next three quarters.
Apart from the patent cliffs, Suvannavejh sees artificial intelligence potentially playing a role in future layoffs at Big Pharma as machine learning and other AI tools may be used to “optimize cost structures.”
Tyler Patchen is a staff writer at BioSpace. You can reach him at tyler.patchen@biospace.com. Follow him on LinkedIn.
