FDA Actions, Economy Affect Biotech Industry

Increased scrutiny by federal drug regulators and continued mergers and acquisitions activity could curb expansion in biotechnology and pharmaceutical industries, according to analysts and economists. A capacity constraint caused by a shortage of manufacturing facilities also could chill the overheated biotech market and job growth as companies exhaust their three-year funding cycles in the next few years, cautions Robert Toth, portfolio manager of the medical technology fund of EGM Capital in San Francisco. The Food and Drug Administration approval of treatments tarries because of organizational problems and because of a renewed safety focus. "There is no FDA commissioner, no champion for the agency right now," Toth says. "For the first time in four years, in 2000 the FDA spent a long time in reviewing and approving new drugs. It was a pretty dramatic slippage. Biotechs, in particular, depend on rapid drug approvals from the FDA, because they do not have the large cash reserves to finance lengthy drug discoveries, according to Toth. The biotechs are affected to a greater degree than the big pharma companies, [because] they tend to try and get their drugs approved on less data." Once a drug has been approved, companies can easily spend $250 million or more to build production facilities, and investors are reluctant to provide the funding until the approval is assured. Meanwhile, both big pharma and small biotech companies continue on the mergers and acquisitions track in the race to overtake their competitors in AIDS, Alzheimer's and cancer research. Consolidation remains a long-term shadow on the bright jobs picture for the industry--intersections in research operations could result in layoffs. For example, in early June, Bristol-Myers Squibb Co., acquired Dupont's pharmaceutical unit for $7.8 billion in cash, creating job uncertainty for 5,000 workers, including 1,800 in research and development. Analysts predict that scientist positions will be spared from any force reductions as cost cutters eliminate duplicate administrative and sales positions. But one area of research may be at risk: Bristol-Myers has an AIDS drug business that could overlap that of Dupont. More mergers could be on the way, as others in big pharma hustle to pack their pipelines with new products. Across the industry, firms like Bristol-Myers are looking at the end of patent protection for profitable drugs, leaving top sellers prey to generic competition. More deals like the Dupont buy could mean job risks for individual groups of scientists. "Companies constantly downsizing and reorganizing has sent a clear message to people that jobs are not secure anymore," says Gerard Lareau III, a recruiting executive in Southhampton, N.Y. "People who would never have considered leaving are in motion today, because the rules have changed and the companies changed them." In addition to tracking mergers, biotech analysts are monitoring the nation's economy to gauge its ultimate effect on the life sciences marketplace. The plummeting stock market, rising energy prices, and corporate budgeting have cost jobs in industries from telecommunications to trucking, according to mid-June data from the Beige Book of indicators, an informal Federal Reserve Board survey of economic conditions. According to the Bureau of Labor Statistics during the first quarter of 2001, 544,717 jobs were lost in a count of layoffs involving more than 50 people, compared with a loss of only 433,968 jobs to similar layoffs during the same period in 2000.1 Analysts say that even the massive lending rate cuts by the Federal Reserve, which whittled the interest rates down to 3.75 percent in May from 6 percent, will not alter the economic outlook until the end of the year. "I think we're in a recession and I think it is going to get worse in the next quarter," says Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc. in Chicago. "If you look at the growth rate, it's going to be negative; we're going to see a contracting economy." Eventually, the economic problems, if not solved, could erode profits in the pharmaceutical and biotech companies, analysts say, but they should be able to escape the immediate crisis. The Federal Reserve's June Beige Book gave a bleak picture of regional economies but described pharmaceutical and biotech industries as bright spots. The industry's hardy prospects stem in part from a boost in funding to the National Institutes of Health, which translates to increased academic employment. The NIH is expected to start the federal budget year in October with $23 billion, a 14 percent increase over the $20 billion budget for fiscal 2001.2 "The federal government has been very generous to the life sciences by funding NIH, so as a result, the employment market for life sciences really is very, very bright," says Eleanor Babco, director of the Commission on Professionals in Science and Technology in Washington, D.C. The benefit of higher federal funding gives investigators like cancer researcher Srikumar Chellappan stable footing to recruit scientists. "Economics that affect other people only have a remote effect on us," says Chellappan, who was interviewing candidates for two openings on his project at Columbia University's department of pathology. "We have a little bit more security." He is not alone in feeling confident. "Certainly we have seen a lot more money coming into the research enterprise, both public and private funds, and I don't hear the same level of anxiety that I did three or four years ago," says Howard Garrison, spokesman for the Federation of American Societies for Experimental Biology, a Bethesda, Md.-based alliance of professional associations. "Whether that's because there are more jobs or because people have adjusted their expectations, I'm not sure." Peg Brickley (dbizpeg@bellatlantic.net) is a freelance writer in Philadelphia. Paula Park can be contacted be at ppark@the-scientist.com. References 1. U.S. Department of Labor, Bureau of Labor Statistics, Occupational Outlook Handbook, 2000-01 Edition, Washington D.C.: U.S. Government Printing Office, 2000, http://stats.bls.gov/ocohome.htm. 2. U.S. Office of Management and Budget, Department of Health and Human Services Budget 2002, page 435, Washington D.C.: U.S. Government Printing Office, 2001.

FDA Actions, Economy Affect Biotech Industry

Interested in reading more?

Become a Member of