Last year Merck confirmed a rumor that 8,500 layoffs spanning marketing, R&D and administration will take place. The announcement has spurred a wave of jitters across Big Pharma and a segment of the financial community. One analyst claims that as many as 100K jobs in Big Pharma are at risk, with minimal prospects that laid off workers would find other jobs in the pharmaceutical industry. That means even as the economy makes its slow improvements, pharma could fall into a second recession or a jobless recovery.
The Merck layoff provides a good example of managers catering to Wall Street and financial institutions. The Citi analyst who covers Merck praised the latest decision to eliminate positions and cut R&D programs because, in his words, "Merck currently lags behind peers in externalisation of R&D." While he considers the cuts as a step in the right direction, he still feels Merck has a long way to go as it relates to cost cutting.
In other words, Wall Street wants Merck and other Pharma Cos to operate its R&D as virtual entities in which they outsource the R&D work to CROs, startups, biotech's and similar companies. That would make pharmas into competitors of private equity, handling management, marketing, sales, etc... Big Pharmas, by operating in the way Wall Street likes and prefers, would no longer function as developers of new therapies.
Such an approach might work for a year or two but, ultimately, it would prove self-defeating because investors would eventually drop and avoid such companies. It wouldn't take investors too long to figure out that owning shares in a virtual pharma amounts to investing in a fin. services entity that, in turn, invests in real developers and trie marketers. Large investors could either find these end-target companies themselves and buy those equities or, in turn, invest in real PE firms that are smarter and tougher than the pharmas. What would investors gain by putting money into inefficient and likely poorly managed Big Pharmas to make these buys for them?