Strategies for Managing Pharmaceutical Workforce and Site Reductions: Analysis of Legal, Productivity, and Quality Control Issues Introduction In 2007, due to the impending patent cliff and the consequent need to cut costs, big pharma began for the first time to outsource chemical API manufacturing to China and India. Prior to this, only generic drug companies had manufactured in the two countries. Since then, big pharma has been undergoing waves of layoffs that have been accelerated by the economic downturn, with manufacturing and sales being particularly affected, and outsourcing levels in R&D and manufacturing expected to increase further in the future. This report examines the different strategies available for managing the layoffs and site closures resulting from not only the outsourcing of R&D and manufacturing, but also the transition from small-molecules to biologics and the need to exploit new markets. The factors causing change and producing the need for workforce reductions are analysed, and the expected impact across the pharmaceutical workforce in the US is detailed. The consequences of layoffs and site closures in terms of legal compliance, maintenance of productivity, and safeguarding of quality control are discussed in depth. Case studies from the pharmaceutical industry are provided to highlight pitfalls and illustrate best practice. The report concludes with discussion of the long-term risks associated with over-dependence on expansion in nonmarket economies and suggests methods to lower these risks. Key Features A single reference for comparing details on employment protection regulations in different countries, and, for the US, highlights of major differences in specific states with large pharma employment. Comprehensive coverage of the changes occurring in pharmaceutical industry employment in developed nations.
Demonstration of how to achieve a cost-effective workforce reduction while maintaining R&D innovation and manufacturing quality. Case studies of issues resulting from workforce reductions and outsourcing of manufacturing and R&D, with numerous examples of pitfalls and best practice. Scope Identify current and future trends in pharmaceutical industry employment and understand their causes. Assess inter-country (and within the US inter-state) differences in employment protection regulations. Gain insight into strategies that have been used for facility divestitures to achieve optimum returns. Appreciate the benefits of engaging with key local stakeholders during workforce reductions and site closures, and understand the sanctions which local governments may attempt to impose. Understand the important role of employee morale and identify measures to retain key staff. Key Market Issues From 1996 2005, US pharma s sales force nearly doubled to 100,000 to support a 26% increase in practicing physicians. However, a significant number of drugs will lose patent protection over the next four years, 2010 2014, representing roughly $60 billion in total, while the generic share of the drug market has increased from 49% to 74% of total sales in the US from 2000 2009. Different companies are adopting various approaches for R&D outsourcing; for example, Eli Lilly plans to outsource 50%, whereas Novartis is committed to a large internal R&D team.
In 2007, global big pharma including AZ, Pfizer, GSK, and BMS, first announced its plans to outsource API manufacturing to China and India; in the same year, of the 1,154 generic drug applications to the US FDA, only 13% of the manufacturing plants were in the US, while 43% and 39% of the plants were abroad in China and India, respectively. Discovery R&D scientific jobs in the pharmaceutical industry require significant years of education and on the job training; in particular, the shift of chemistry jobs overseas will have long-term negative effects on the US pool of chemistry talent that will be difficult to reverse. Regional stakeholders, including local business and government leaders, are keenly interested in identifying solutions for the future of manufacturing sites and supplying assistance for the displaced employees. Key Findings The projected growth from 2008 2018 for US pharmaceutical and medicine manufacturing employment lags behind the projected employment growth for all US industries, at 6% versus 11% respectively, due to generic competition and drug production moving overseas. OECD synthetic indicators measure the strictness of overall employment protection against dismissals of part- and full-time employees and restrictions on temporary hires, and are low for the US, Canada, and the UK; intermediate for Ireland, Japan, and Hungary; and high for Germany, China, India, and France. Companies that work closely with regional stakeholders will gain partners who assist with marketing and locating financial investment and potential buyers for the closed facility. The timing of workforce reduction announcements can be crucial to the reception both within the workforce and in the wider community. In some cases, poorly chosen timing
has significantly complicated the layoff process and has generated considerable bad press. Key questions answered What are the employment protection regulations regarding a mass layoff or facility closure in key states in the US and countries in Europe and Asia? What happens to the government tax benefits and incentives when a company undergoes employment reduction? When and why do companies provide additional severance and displacement support? What two factors are key for a cost-efficient workforce reduction? How does a company most effectively and quickly recover from a workforce reduction? What is necessary to maintain an innovative R&D group after a workforce reduction? What are the long-term risks of outsourcing to China and India? How does a company minimize risk exposure to nonmarket economies?
Table of Contents Strategies for Managing Pharmaceutical Workforce and Site Reductions Executive summary 12 Introduction 12 Pharmaceutical employment trends in developed nations 13 Legal regulations and considerations 13 Managing employees through workforce reductions 14 Biotech and pharma workforce reductions 15 R&D and manufacturing site closures 15 Outsourcing and offshoring for research and manufacturing 16 Long-term risks of outsourcing and offshoring 17 Chapter 1 Introduction 20 Summary 20 Introduction 21 Pharmaceutical industry background 21 Pharma background 22 Main pharma therapeutics 23 Biotech background 24 Main biotech therapeutics 25 Current snapshot of the pharmaceutical industry 26 Current sales, manufacturing, and R&D 26 Current challenges facing the pharmaceutical industry 27 Big pharma challenges 29 Biotech challenges 31 Current changes for the pharmaceutical industry 33 Mergers and acquisitions 33 Workforce reductions 35 Outsourcing of R&D 35
Manufacturing moving to China and India 36 Effects of change on the pharmaceutical industry 36 Convergence of big pharma and biotech 37 Effects of change on big pharma 38 Effect on big pharma sales 39 Effect on big pharma manufacturing 39 Effect on big pharma R&D 39 Effects of change on biotech 41 Effect on biotech R&D 41 Future models for the pharmaceutical industry 42 Smaller patient populations 42 Diagnostics and improved efficacy 43 Global markets, both branded and generic opportunities 44 Global market projections 44 Opportunities for generics and branded generics 45 Conclusion 46 Chapter 2 Pharmaceutical employment trends in developed nations 50 Summary 50 Introduction 51 US pharmaceutical and medicine manufacturing, 2008 2018 52 US pharma manufacturing background 53 US pharma manufacturing employment 54 US pharma manufacturing occupations 56 US pharma manufacturing employment change 56 US scientific research and development services, 2008 2018 58 US SRDS background 58 US SRDS employment 59 US SRDS occupations 59 US SRDS employment change 61 Conclusion 64 Chapter 3 Legal regulations and considerations 66
Summary 66 Introduction 67 General legal requirements for workforce reductions 67 North American regulations 69 US 70 US federal 71 US states and territories 75 Canada 79 Canadian provinces 80 European regulations 81 UK 82 Ireland 83 France 84 Germany 85 Bulgaria 86 Hungary 87 Asian regulations 87 Japan 88 China 88 India 89 Singapore 90 Beyond legal requirements 90 Conclusion 91 Chapter 4 Managing employees through workforce reductions 94 Summary 94 Introduction 94 The employee 95 Significant factors 96 Communication 97 Phases of a workforce reduction 97 Before 97
Day of announcement 98 Initial transition 98 Later transition period 99 Case study 100 2009 Sanofi-Aventis US salesforce reduction near US Thanksgiving holiday 100 2009 Sanofi-Aventis US sales background 100 Events over the Thanksgiving weekend 101 Review of Sanofi-Aventis timing 101 Conclusion 102 Chapter 5 Biotech and pharma workforce reductions 104 Summary 104 Introduction 104 Insight into employees 105 Biotech culture 105 Pharma culture 106 Survey of concerns regarding impact of workforce reductions 107 Strategies for employee retention and motivation 109 Training and opportunities 110 Financial incentives 110 Workplace conditions and environment 111 Maintenance of previous employment benefits 112 Strategies for workforce reduction 112 General strategies 112 Rigorous environment for quality R&D and manufacturing 113 R&D 114 Productivity 114 Administrative 115 Sales 115 Manufacturing 116 Case study 116 J&J product recalls at its McNeil Consumer Healthcare division 116
J&J and McNeil background 117 Systemic quality issues and potential phantom recall 117 Review of contributing factors 118 Conclusion 119 Chapter 6 R&D and manufacturing site closures 122 Summary 122 Introduction 122 Facility closures 123 R&D facility closures 124 Manufacturing facility closures 124 Survey of concerns and management methods with regard to facility closures 125 Case studies 128 Eli Lilly divests and outsources a manufacturing facility in one move 129 Lilly and the Tippancoe facility 129 Sale to Evonik with a nine-year products and services agreement 130 Lilly strategy: divest operating facility to a strong partner 130 Sanofi-Aventis training for the biologics transition in France 131 Sanofi-Aventis in France 131 Sanofi-Aventis to maintain a constant number of jobs in France, 2010-2014 131 The Sanofi-Aventis goal: champion of European vaccine production 132 New York tax break issues for Pfizer closure and workforce reduction 133 Pfizer closure of Brooklyn plant and employment reduction in NYC 133 Pfizer versus Manhattan 133 Tax breaks and negative consequences 134 Conclusion 135 Chapter 7 Outsourcing and offshoring for research and manufacturing 138 Summary 138 Introduction 138 Managing R&D workload 139 R&D outsourcing 140
Maintaining quality 140 Location of contract research organization 141 Offshore research and manufacturing 141 Rule of Law in different countries 142 Rule of Law in India 143 China and India 144 China for small-molecule drugs and R&D 144 India for small-molecule drugs and vaccines 145 China and India drug quality issues 146 Case study of outsourced manufacturing 148 The generic drug company Teva 149 Teva background 149 Teva strategy for quality manufacturing 150 Teva future expansion 151 Conclusion 151 Chapter 8 Long-term risks of offshoring 154 Summary 154 Introduction 154 Long-term risks of offshoring discovery R&D 155 Long-term risks of offshore manufacturing 155 Risks of drug quality and safety 155 Monitoring of manufacturing, storage, and transportation 156 Quality a marketing attribute in China 156 Dealing with nonmarket economies 157 Dialogue with governments 157 Conclusion 158 Appendix 159 Primary research methodology 159 Survey rating experienced respondent concerns for workforce reductions and facility closures in the health industry 159 Abbreviations 160
Index 164 Footnotes 167 List of Figures Figure 2.1: Major occupational categories in US pharmaceutical and medicine manufacturing, May 2008 56 Figure 2.2: US pharmaceutical and medicine manufacturing employment of wage and salary workers by occupational category, 2008 2018 57 Figure 2.3: US scientific research and development services employment of wage and salary workers by occupational category, 2008 2018 62 Figure 2.4: Additional details for current and projected US scientific research and development services employment of wage and salary workers by occupation, 2008 2018 63 Figure 5.5: Individual rating of concerns regarding workforce reductions by layoffexperienced respondents in the health industry 108 Figure 5.6: Selection of top two concerns regarding workforce reductions by respondents experienced in the health industry 109 Figure 6.7: Individual rating of concerns for facility closures 126 Figure 6.8: Selection of top two concerns for facility closures 126 Figure 6.9: Methods used for managing facility closures in the health industry 127 Figure 6.10: Selection of two most important methods used for managing facility closures 128 List of Tables Table 1.1: US R&D spend domestic and abroad, 2006 27 Table 1.2: US drug development costs for novel therapeutics 30 Table 1.3: Global pharma mergers and acquisitions, 2000 2009 34 Table 1.4: Global biotech mergers and acquisitions, 2000 2009 35 Table 1.5: Representation of protein therapeutics in global top-selling drugs, 2010 and 2014 38 Table 1.6: Active US clinical trials by select disease area, 2008 40 Table 1.7: Global pharmaceutical market by region, 2008 and 2020 45 Table 2.8: Overview US pharmaceutical industry employment, 2006 51
Table 2.9: US pharmaceutical employment by state/territory, 2006 52 Table 2.10: US pharmaceutical and medicine manufacturing employment of wage and salary workers, 2008 2018. 55 Table 2.11: US scientific research and development services employment of wage and salary workers, 2008 2018 60 Table 2.12: Additional details for US scientific research and development services employment of wage and salary workers, 2008 2018. 61 Table 3.13: International comparison of overall employment protection by OECD indicators, 2008 69 Table 3.14: Comparison of US federal and 2003 California WARN 76 Table 3.15: Comparison of US federal and 2005 Illinois WARN 77 Table 3.16: US federal and 2007 New Jersey WARN 78 Table 3.17: Comparison of US federal and 2010 New York state WARN 79 Table 3.18: Gross unemployment benefits as a proportion of gross annual income by country, February 2010 91 Table 4.19: Rating of major life stressors 96 Table 7.20: Cross-country comparison of Rule of Law indicator (percentile) from the Worldwide Governance Indicator project, 2008 143