A Winter of Discontent for Industry Scientists

Courtesy of The Herbert Hoover Presidential Library Museum NEW YORK STOCK EXCHANGE: After the crash of 1929, unoccupied traders loiter. Historically low stock prices in 2002 hearken back to those more destitute times. It took awhile to catch up, but biotech and pharmaceutical companies have now shown they are not immune to the malaise that crept across the US economy two years ago. The collapse of the Wall Street technology bubble has left both large and small drug discovery and development firms desperate for capital to keep their work alive. The lack of new investment has forced companies to lay off employees, sell promising projects, or close their doors. "The money is drying up all over the place. It's not pretty out there," says Anthony Lopez-Ona, a Philadelphia business consultant to life science companies. Hard times first hit in 2002, and analysts and company hiring executives say 2003 will continue to be painful for US companies and excruciating for their European competitors. "The best I can say is that if we've hit bottom, it's a trough. We'll be here for awhile," says Nancy Arnosti, a human resources consultant in Chadds Ford, Pa., who works with US and European drug companies. Even companies with products on the market and cash on their balance sheets are playing it safe when it comes to expansion and new hiring. "We are being much more cautious and really scrutinizing our needs. We have applied more caution in light of the economy," says Jo Norton, director of workforce development at Genzyme in Cambridge, Mass. THIN ON BLISS After enjoying a windfall of public and private investment in the late 1990s through 2000, biotechs have seen funding fall off sharply. Many companies have been able to survive by hoarding the wealth they reaped in the boom, but that cushion is wearing thin. "A lot of companies' valuations are really beaten down," says Lopez-Ona. "They're laying off people. They're trying to tread water." To make matters worse, a key survival technique used through much of 2002 now appears to be waning, says Lopez-Ona. He says so-called pipe financing, in which private investors give an additional infusion of cash in return for increased equity, has begun to drop off. In October investors arranged only $4 million (US) in pipe financing, he says. Meanwhile, the market for initial public offerings, which traditionally provided the final payoff for early venture investors, is barely showing a pulse. As a result, investors remain tied to their pre-2001 investment decisions and unable to finance new ideas, says Lopez-Ona. The industry's financial woes have had a direct effect on the hiring of scientists. When the owners of a company decide they can no longer make a go of it, they can usually find a buyer for the company's intellectual property or products, though not necessarily for its staff. "In 2001 it was still very difficult and competitive to find people; 2002 was a lot easier," says Chris McKinley, vice president of human resources at Cell Genesys in Foster City, Calif., which is working on cancer vaccines. Courtesy of Cell Genesys Chris McKinley When Cell Genesys acquired Calydon, a Sunnyvale, Calif., gene therapy company, it took on only half of Calydon's 20 employees. Norton says Genzyme is making a special effort to recruit people from failed companies. She also says she is more likely to give a job to someone losing their current one than to someone just entering the field: "We know they are going to be anxious to make a move and they've got industry experience. That's going to put the odds in their favor over somebody just coming out of a postdoc." In an attempt to survive, smaller companies continue to try to form strategic alliances and partnerships with larger firms. The number of major biotech- pharmaceutical development deals has increased from 160 in 2000 to more than 225 in 2002, according to Cutting Edge Information, an industry research firm in Durham, NC. However, big pharmaceutical companies are growing increasingly cautious about alliances, Arnosti says. "They are very shy about making big deals. They don't want to be the next Bristol-Myers Squibb with an ImClone," she says. "They're being very cautious about technology partners and drug development partnering, but less so if it is a comarketing deal with a company that already has a product." Continued consolidation in the pharmaceutical industry is also creating hesitancy, she says: "There is a lot of confusion. It's harder to do deals if you don't know whether you are going to be acquired later or not." At AstraZeneca, the British pharmaceutical company with US headquarters in Wilmington, Del., hiring will slow in 2003. Last year the company hired 400 in its US operations, most of them in new positions. In 2003, the company plans to hire only for jobs that become vacant through attrition, says Matthew Spirko, director of strategic staffing for AstraZeneca in the United States. "We need to be assured there is financing to move everything that's in our primary pipeline into the marketplace," Spirko says. "Everything is based on a business decision." GOVERNMENT AID For some companies that depend heavily on government or foundation grants, the environment is less punishing. The National Institutes of Health received record funding of $27.3 billion last year, double what it received five years earlier. "Our hiring has not slowed significantly. We do the majority of our hiring based on grants and they haven't cut back on grants to the biotech industry or for research," says Judy Colyn, director of human resources at LifeCell, a New Jersey company that develops tissue grafts. But Colyn says the company is not expanding, only filling positions left by scientists relocating or moving back to academia. "This is a low recruiting year all the way around for scientists," she says. Colyn and other human resource executives say they had not noticed a large-scale return to academia among scientists who have become disenchanted with the private sector. "Obviously there's always going to be an element of back and forth," says Spirko, "but I don't see people who came into the industry saying they're going back to academia." As bad as the environment is in the United States, it is even tougher in Europe, says Arnosti, who regularly consults with clients in Germany, where she says the industry is taking its hardest hit. "The economy is much worse. The political situation is much worse. People are feeling a lot more hopeless," says Spirko. In Germany, the biotech industry, which received massive government support in the 1990s, is not as well developed as the US market, so fewer companies have products to provide revenue to weather the current downturn. "The consolidation in biotech is much more dramatic than in the United States," notes Spirko. "They weren't as well capitalized. They were earlier in the business model and they're getting hit harder." Spirko adds that companies in the United Kingdom are also less far along than those in the United States, but are in better shape than those in Germany. For those who can hang onto jobs, salaries remain high. According to a survey of researchers' salaries sponsored by The Scientist, the median salary for pharmaceutical scientists was $80,000 in 2002, compared with $72,000 for biotech scientists.1 Arnosti says she does not see salaries declining, but bonuses and option packages are no longer given at all companies. For companies that are hiring, there are needs for specific talent. Norton, for example, is particularly interested in protein chemists and people with a background in neuroscience. Arnosti says there appears to be a glut of molecular biologists who trained for the field several years ago in the euphoria over the human genome project. "I was surprised to see the number of folks at job fairs with that background. I felt badly. They were excellent candidates; it's just that there were so many of them." Cell Genesys' McKinley says her company and other biotech firms are keen on finding people with a background in engineering and manufacturing as they grow from scientific research firms to manufacturers and marketers of products. She says that in the early days of biotech there were not enough academic programs turning out people trained in research. Now the problem is that there are not enough graduates to fill positions in biotech manufacturing. "It will correct itself over time, but for the next several years we'll be feeling the lack of trained people in engineering and manufacturing," McKinley says. "It's a sign of the maturation of the industry." Susan Warner (swarner@comcast.net) is a freelance writer in Philadelphia. 1. "Compensation for Life Scientists in the United States of America 2002," Abbott, Langer, & Associates, and sponsored by The Scientist and the American Institute of Biological Sciences.

A Winter of Discontent for Industry Scientists

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