Pharma Job Cuts Cause Anxiety for European Governments

With downsizing occurring more frequently than ever within the pharmaceutical industry, is Europe doing enough to curb further job losses that could threaten the recovery of its economy?

As a major source of employment, the pharmaceutical industry plays a key role in the European economy. According to the European Federation of Pharmaceutical Industries and Associations (EFPIA), the industry at present directly employs 660 000 people in the region (1). Equally important is the fact that it generates between three to four times of additional employment indirectly (1). Therefore, while many European governments have focused on cost-containment measures as a means to curb healthcare spending, they remain wary of putting too much pressure on pharmaceutical companies because of the impact it could potentially have on their investment in the region (2).

Companies have been voicing their concerns for a number of years about the tough operating conditions in Europe, hinting that they may shift investment to other regions, particularly the emerging markets. Over the past two years, there have been a series of high-profile job cuts in the European pharmaceutical sector, with companies linking such measures to the unfavourable operating environment. For politicians, these measures could not have happened at a worse time. With Europe in the midst of economic crisis and governments struggling to create new jobs, the role of the pharmaceutical industry as a major employer is crucial to economic recovery.

UK takes a hit

The significant impact of a pharmaceutical company’s decision to cut jobs is illustrated by Pfizer’s closure of its R&D base at Sandwich, Kent in 2011 (3). Given the site’s previous successes on the R&D front, for example having discovered products such as Viagra, Pfizer’s decision came as a shock to observers because the UK is known to have a long-standing history of a vibrant pharmaceutical sector. Unions complained about the government’s economic cutbacks and highlighted that the jobs lost at Pfizer’s facility were the type that the country needed to preserve for economic recovery and that the move would devastate the local region (4). Although a total of 2400 direct job losses were reported, it was estimated that because other sectors depended on Pfizer’s business, the region would lose approximately 5000 jobs overall (3).

Following Pfizer’s announcement, the government and local authorities have been striving to come up with an alternative plan that can sustain the region, but has so far failed to produce anything conclusive. Perhaps even more worrying for the UK government is that with Pfizer taking such a major decision to cut jobs, other companies may be less apprehensive about taking a similar approach. While companies may not openly state that cost containment plays a part in such decisions, it is likely to be the case.

The latest shock concerning job cuts was announced by AstraZeneca this year (5, 6). In March, AstraZeneca stated that it would be closing down its Alderley Park R&DD facility. Like Pfizer’s Sandwich site, this facility had been considered a major base for R&D in the UK and would therefore have a dramatic local effect. At least 700 jobs were set to go as a result of the Alderley Park closure and 1600 staff would be asked to relocate to Cambridge (5, 6). The announcement was particularly embarrassing for the government given that the local area is in the constituency of George Osborne, Chancellor of the Exchequer. Five months earlier, Osborne had helped AstraZeneca to secure a £5-million government grant to develop its Alderley Park R&D facility (7).

Switzerland and France challenge job cuts

The UK is not the only country where national politicians have found themselves under pressure as a result of pharmaceutical industry job cuts; elsewhere, major company decisions have been challenged as well. In Switzerland, Novartis’ decision, announced in 2012, to cut 1080 jobs despite recording net sales of $56.7 billion caused considerable controversy in the media (8). At that time, Joe Jimenez, CEO of Novartis, claimed that the tough economic environment made it impossible for the company to deal with pricing pressures and yet maintain the current level of employment. However, a hint that the company would be open to new ideas prompted intense behind-the-scenes negotiations between Novartis, the unions and local government, which then resulted in the avoidance of job cuts. The main site that was set to suffer was Novartis’ facility at Nyon; however, a mixture of concessions from the workers coupled with favourable tax offerings from local government saved the site. For example, the redevelopment work taking place at Nyon would now be treated as a new project from a tax perspective, hence reducing some of the costs involved. Furthermore, a proportion of Novartis’ land was set to be reclassified as residential rather than commercial thereby increasing its value.

Novartis has a long history in Switzerland and is generally viewed with pride by the country’s citizens. The initial announcement regarding job cuts at Nyon was criticised in the popular media as being the result of “American influence” within the Swiss company’s boardroom—an accusation that the company strongly rejected. While Novartis may still cut several jobs at other Swiss sites in the future, for now, its reputation in Switzerland has been restored among the public (8).

The manner in which the local government and other local parties were able to respond to the Novartis situation in Switzerland is a sharp contrast to what took place in the UK. In 2011, Novartis announced a plan for job cuts at its Horsham site (9).

As with the Pfizer situation in Sandwich, local politicians reacted negatively to the news, but seemed unable to influence the decision. Novartis has stated that it will maintain some jobs at Horsham, but it is still committed to considerable job cuts at the site (10).

France has been experiencing a similar situation to what occurred in Switzerland due to Sanofi reorganising its global operations. In July 2012, the national newspaper Le Figaro reported that up to 2 000 jobs might be cut in France as part of the company’s drive to reduce its workforce (11). Sanofi also quoted unions who expected a higher figure of job cuts. Between 2009 and 2011, the company had already cut 4 000 jobs, but would not clearly state how many jobs might go in its next round of cuts. The French government reacted quickly, as it was already facing considerable public criticism for being unable to kickstart the economy and also due to imminent job cuts in the automotive sector. It held behind-the-scenes discussions with Sanofi, which led to the company announcing that there would be fewer job cuts and a commitment to maintaining its existing sites in France (12).

Despite this outcome, there are still concerns in France, particularly from the unions, that the initial number of job losses will still take place at a later time. The main Sanofi site under threat is located in Toulouse and workers have been holding regular protests in the hope of prompting a reconsideration. The government has said it is still seeking guarantees from Sanofi and that detailed proposals for different options are still under discussion (13). The Wall Street Journal reported that a government-sponsored report was due at the end of April 2013 (14).

Outlook

European governments should be concerned about the current situation of job cuts within the pharmaceutical sector as they are taking place against a backdrop of severe economic problems. In particular, the UK government should be more proactive, especially because its previous attempts to prevent these job cuts were unable to influence company opinions. While not finding ideal solutions, France and Switzerland have at least managed to prompt major companies to rethink their approach to cutbacks.

In late 2012, GlaxoSmithKline’s CEO, Sir Andrew Witty, painted a depressing picture of the European market from a company’s perspective; analysts have linked such statements to future job losses (15). Given that GlaxoSmithKline is a major UK company, it would be prudent for the government to take heed of this situation and respond constructively to any downturn for the pharmaceutical job market.

References

1. EFPIA website, “The pharmaceutical industry in figures,” www.efpia.eu, accessed 3 May 2013.

2. N. Jessop, Pharm. Tech. Eur. 25 (2) 12-14 (2013).

3. The Guardian website, “Budget 2011: Sandwich will lose more than its jobs when Pfizer closes,” www.guardian.co.uk, accessed 3 May 2013.

4. Unite the Union website, “Unite’s reaction to the closure of Pfizer in Sandwich, Kent,” http://archive.unite-theunion.org, accessed 3 May 2013.

5. The Guardian website, “AstraZeneca cuts 2300 sales and administration jobs,” www.guardian.co.uk, accessed 3 May 2013.

6. Reuters website, “Ailing AstraZeneca to cut one in 10 jobs,” www.reuters.com, accessed 3 May 2013.

7. The Guardian website, “AstraZeneca to cut 2150 jobs in George Osborne’s constituency,” www.guardian.co.uk, accessed 3 May 2013.

8. International Service of the Swiss Broadcasting Corporation website, “Novartis U-turn is a win-win solution,” www.swissinfo.ch, accessed 3 May 2013.

9. BBC website, “Novartis job cuts plan in Horsham shocking,” www.bbc.co.uk, accessed 3 May 2013.

10. Pharmafile website, “Novartis pledges to maintain R&D presence in Horsham,” www.pharmafile.com, accessed 3 May 2013.

11. Le Figaro, “Sanofi va supprimer des milliers d’emplois en France,” Press Release, 5 July 2012.

12. UK Reuters website, “Sanofi cuts fewer French jobs than planned after government pressure,” http://uk.reuters.com, accessed 3 May 2013.

13. Le Figaro, “Sanofi: des restructurations douloureuses en France,” Press Release, 9 Jan. 2013.

14. Wall Street Journal website, “Change France? Sanofi finds it can’t,” http://online.wsj.com, accessed 3 May 2013.

15. The Telegraph website, “GSK to review European operations amid sales fall,” www.telegraph.co.uk, accessed 3 May 2013.