Biotech Mergers Risky For Bench Scientists

Today's trend toward industry consolidation yields a grim byproduct for some researchers: the loss of their jobs Chiron buys Cetus, while Genzyme merges with Integrated Genetics. Quidel acquires Monoclonal Antibodies, and American Home Products agrees to buy 60 percent of Genetics Institute. The headlines are coming fast and furious these days. But while the torrent of announcements concerning mergers and acquisitions among biotechnology firms are greeted warmly by many industry watchers as a sign of the biotech's move toward maturity, they're unsettling to some of the bench scientists who have played key roles in nurturing these same companies through their infancies. Indeed, for researchers whose scientific objectives and job security depend on the stability of their employers, the big deals that their bosses are making can be downright threatening. Dale String-fellow, a molecular virologist and head of R&D at Celltrex Corp., a Palo Alto, Calif.-based biotech developing cyto- kines for cancer therapy, articulates the uneasiness that can arise when a committed researcher's company suddenly joins forces with another firm. Says Stringfellow: "You're used to working within given parameters, and suddenly those parameters change. It can be quite difficult to re-orient yourself." What do the words "merger" and "buyout" really signify? In the best case, of course, they herald success--a means for a firm to gain the financial wherewithal to make better, faster progress on research. In the worst of cases, they foretell the termination of projects and the loss of jobs. Whatever the case, it appears that an increasing number of biotech scientists will be affected by such corporate dynamics in coming months. Microbiologist Mark Dixon had been at Ventrex Laboratories Inc. in Portland, Maine, for six and a half years when the company announced that it was being bought by Hycor Biomedical Inc. of Garden Grove, Calif.--and Dixon lost his job. "You can usually sense when layoffs are coming," says Dixon, who had witnessed four previous rounds of layoffs at Ventrex. "The company has been losing money, stock is down, and it doesn't seem that there is enough work to go around. There is just a feeling in the air. And each time I would prepare myself mentally by listing the reasons why they might want to lay me off." And it was easy, he says, to identify the biggest mark against him: having been in the field for 15 years, he was earning $40,000, making him a very expensive commodity in Maine. If the company was willing to forego on his level of experience, Dixon says, they could easily find a new graduate to take his place for $15,000. But when the axe finally fell last April, he found that it was still a shock: "You're mad, hurt, and frustrated. You want to scream and yell. But all you can really do is leave with dignity." Ventrex hired an outplacement firm to work with the 30 people laid off with Dixon, and he immediately went to work with reference books and telephone to identify his opportunities. There aren't a lot of scientific positions to be had in Maine, but because he had already worked in New Jersey and West Virginia, and because he and his wife, a biochemist, had recently bought a house and started a family, moving was not a option they wanted to consider. Dixon was pleasantly surprised to find that there are about 20 biotech companies in the greater Portland area, and that people were very willing to try to help. But most of the startups were very small operations that couldn't afford expansion. Within a month, he had found a lab job and started work at $25,000--with a promise from his boss that if his performance merited it, his salary would be in the mid-$30,000 range within six months. But after just three weeks, the man fired him, without explanation. "I got several systems up that he had never been able to get working. It's pretty obvious to me that he wanted to bring me in at minimal pay, tap my knowledge, and then get rid of me," Dixon says with some bitterness. Knowing that other options were few, if not nonexistent, Dixon called up his old boss at Ventrex. "It was hard to call him back," he admits. "But you have to do what you have to do. I have a wife and child, and I have responsibilities." He was encouraged to learn that Hycor was considering expanding his old group, and he was offered a temporary job in manufacturing. Thinking that it would help to be working in-house if his old job opened up, Dixon went to work on the production line, coating test tubes to be used for immunoassays. Within two months he was laid off again. "I told the production manager that I was being considered for a job in the company, and that this [layoff] would make it harder for me to get it," he says. "The guy just said: `I don't think you are [being considered].' " Though he harbors little resentment against Ventrex or Hycor, Dixon does find fault with what he sees as a system in which layoffs only affect the lower echelons. "The people in upper management are paid $100,000-plus--not because they do multiples of the amount of work that everyone does, but because they are meant to be held accountable for what they do," he says. "When the company is doing poorly because of mismanagement and they don't lay them off, no one is being held accountable." Ventrex officials referred comment to Rich Hammill, president of Hycor. "A merger like this is a traumatic experience that causes significant change for a lot of people," Hammill says. He adds: "No personnel decisions were made without concern for the individuals involved and no part of the organization was spared." In that regard, Hycor announced, in early October, the layoff of eight additional Ventrex employees, three of whom were senior officers. Dixon's problems are exacerbated by the fact that his wife was laid off this summer--though now it looks as though her old job at DiaMed Inc. in South Wyndham, Maine, will be offered back to her soon. "At the moment, I don't know what I'm going to do," Dixon says. "I'm beginning to explore other avenues, such as teaching. I'm very, very frustrated. What I want to do is go back to work at my old job; I felt productive, and I felt that I had a lot to offer. "Now, I'm stuck. I spent all day down at unemployment. And I'll be there again tomorrow." --S.L.-J.D. According to international accounting firm Ernst & Young's annual survey of the biotechnology industry, there have been more than 30 mergers or acquisitions in each of the past three years; the accounting firm's list includes 44 deals for the fiscal year ended June 1991, and 37 for the previous fiscal year. What's more, establishing enough value to attract an acquisition was a goal for almost half of the companies responding to the 1991 survey, while the same questionnaire revealed that over the next five years, 47 percent of the companies planned to acquire a smaller firm; 39 percent desired to be acquired by a larger firm; and 32 percent intended to merge with a comparably sized bio-tech (see accom- panying charts). Fueling this consolidation, analysts generally agree, are factors both financial and strategic. As an increasing number of biotech products approach the market stage, many young companies are finding it impossible to handle the financial and organizational burdens associated with scaling up their manufacturing, sales, and marketing capabilities--not to mention meeting the ongoing challenges presented by the regulatory approval process for their products. And the larger pharmaceutical companies are discovering a competitive advantage to investing in biotech companies with a different technical expertise than they have in-house, and a promising research pipeline that will keep their development, marketing, and sales departments in business. The extent to which such a merger has an impact on scientists working in the lab seems to depend to a great extent on the motivation of the company doing the acquiring, says industry observers. A company that sees a buyout as a short-term investment, or the opportunity to cash in on an existing product line, is not going to spend much time or effort satisfying--or even retaining--a research staff. But many of the firms doing the investing these days are more committed to the long-term future of biotechnology and, thus, are interested in preserving the integrity of the smaller company that they are buying. "Successful biotechs are attractive investments for larger companies precisely because their entrepreneurial orientation enables them to move quickly to change the focus of R&D or to enter new markets," says James S. Manuso, vice president of the Neil Michael Group Inc., an executive search firm in New York. "Therefore, the tendency today is to recognize the high value of the company being acquired as it is, and maintain a hands-off approach." "Companies for whom research is the biggest asset," adds executive search consultant, Michael Cole of Griffon Associates in New York, "will go to almost any lengths to preserve it." When Cetus Corp. of Emeryville, Calif., was in trouble last year because of problems in getting FDA approval for interleukin-2 clinical trials, he points out, the company cut administration and marketing, but they tried to keep research together. In late July, Emeryville-based biotech Chiron Corp. announced that it would acquire Cetus. Of course, it's easy to view dispassionately a business move from the outside, but the most common and immediate reaction experienced when you're in the middle of it is fear. Fear of losing your job, fear of your project no longer being a priority, fear of the culture of the workplace changing. But the biggest fear is of the unknown. "We lost more people [when it was announced that Integrated Genetics would be bought by Genzyme Corp.] because of a considered move of some labs from Framingham [Mass., where Integrated is located] to Cambridge, [Mass., where Genzyme is based] than anything " recalls Integrated Genetics' vice president for research, Alan Smith. For scientists at ZymoGenetics Inc. in Seattle, which was bought by Novo Nordisk of Denmark, the news was almost all good. "The scientists mostly felt relief that finally we were safe from an unstable market and financial problems," says Andrzej Sledziewski, head of research at ZymoGenetics. "Some people had concerns of relinquishing fiscal and scientific control to someone in another country. But our function for Novo Nordisk is to be a part of U.S. science, so they didn't introduce any dramatic changes." The one difficulty Sledziewski has faced is making the extra effort to communicate with colleagues across thousands of miles, both logistically and synergistically. "Noncommunication can lead to misunderstanding," he says, recalling that there was trouble early on between two groups of scientists working on similar projects on opposite sides of the Atlantic. "We had some problems with egos in determining who was first making a certain discovery. But good communication has helped us avoid this kind of problem." Since the takeover, Zymo-Genetics' personnel has increased by about 50 percent, it has built new facilities, and it has expanded into new areas with animal, preclinical, and clinical studies. "We bought our freedom" in selling the company, says Sledziewski, who says that being able to plan beyond current deadlines is a major and welcome psychological change for everyone at ZymoGenetics. "Nothing pleases people more than being part of a success," Smith says. Since the merger between Genzyme and Integrated Genetics in August of 1989, Smith reports, the stock price has skyrocketed from $10 and $3 per share, respectively, to $47 by late summer, 1991; staff has increased from 400 to 700; and today the company has $300 million in the bank. Integrated Genetics did lay off 25 people just before the merger; some projects were dropped; and staff at both companies had their share of concerns over the merger, some of which drove senior scientists at Integrated away, notes James Rasmussen, vice president for research, along with Smith, at the new Genzyme. But the complementarity of skills of the companies--Genzyme's products and Integrated Genetic's technology--seems to have made for a winning combination: since the merger in August of 1989, the R&D staff has tripled. And even some for whom it means the loss of a job can see the rationale for such a business move. Mark Dixon, who has now been laid off twice by the same company (see story on page 10), harbors surprisingly little resentment toward his ex-employer. "A company has to be in business to make money. I don't have a problem with that," he says. "Much as we'd like to say we're in the business of the betterment of mankind, if it's not making money, it won't survive." For some whose company was bought for reasons other than the promise of its research pipeline, life can become quite difficult. One head of R&D, who requested anonymity, at a diagnostics firm that has recently been acquired, acknowledges that the main asset of his company was its product line, and notes that for the scientists under him, life has changed dramatically since the buyout. Social, policy, and organizational changes have all been implemented--and it remains to be seen whether these changes can increase profitability, he says. "Before, we had a more dynamic, more inclusive organization," the R&D manager says. "We had a focus on empowering the work force, on including them in what decisions we could. Now, there seems to be more divisiveness between management and staff, and the scientists feel cut off from control." One of the scientists under him, who also asked not to be identified and who has been with the company for over 10 years, describes the changes more specifically. Flex time has been abolished; vacation and sick time have been cut; everyone, regardless of seniority, must wait another five years before being vested in the retirement plan; and all purchase requests greater than $5 must be submitted to the parent company across the country for approval. Communication is a problem, as well. This scientist claims she can't find out exactly what the new tuition reimbursement policy is, and none of the staff understand how the new salary review plan works. "But the biggest problem thus far is not being sure of my job," she says. "Are they going to move me? Lay me off? Restructure my job? None of that has been finalized. Under the agreement, they only have to pay employees severance if we are laid off within 90 days of the merger. Currently, we're more than halfway there, and the speculation among employees is that they will wait to do layoffs till after the deadline." And most disturbing to her are the changes this upheaval has wrought on her colleagues, and the atmosphere in which they work. "It's much more tense," she observes. "Everyone is worried and on edge. People don't smile in the hallways. People aren't telling jokes the way they used to. Now, the only discussion you hear at the water cooler is about potential layoffs." "I think the biggest problem with all this merging," says the head of R&D, who himself does not expect to last another month at the company, "is that the focus is on immediate profitability, with less focus on trying to make a better mousetrap." Many other scientists for whom a merger or acquisition has been a negative experience are loath to speak on the record about it, perhaps fearing repercussions in a scientific community where everyone knows everyone and where reputation is a scientist's primary asset. According to an industry consultant, one scientist, who was a project leader at a company that was acquired, has "nothing good to say" about a "horrible" situation. She was left out of strategic meetings, and feels that she was lied to throughout negotiations; after the acquisition, she says, "everything changed," and her project was not the priority management had said it was. Another scientist reports that, in his experience, people at the top don't pay any attention to the people under them. "In an acquisition," he says, "it's pretty much every man for himself." Though layoffs are a growing reality for scientists in biotech, scientists and biotech watchers alike remain confident as to future career opportunities in the industry. The number of people employed by biotech companies is still growing: Over the next five years there will be a 50 percent increase in R&D staff in the industry, while the marketing and manufacturing work force will triple, Ernst & Young projects. "As the industry grows and more products come out of the R&D pipeline," the Neil Michael Group's Manuso predicts, "scientists will have increasing opportunity to change hats and evolve with their products into product development, corporate partnerships, and regulatory affairs." If anything, he says, as fewer and fewer young people are expected to choose science as a career, 10 years from now scientists will find themselves in extreme demand, as the country faces a critical dearth in technically trained professionals. In the meantime, biotechs are going to continue being merged and acquired, and scientists will have to continue to accept that in business, business comes first. "People are important," says Satish Tyagi, an industry consultant with Fritzsche, Pambianchi & Associates of Somerville, N.J., "but this is capitalism." Susan L-J Dickinson, a freelance writer based in Philadelphia, is a contributing editor to The Scientist.

Biotech Mergers Risky For Bench Scientists

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