Industry Overview

The pharmaceutical industry goes back to the first human who noticed that chewing a piece of bark made his headache go away. Today, pharmaceutical companies produce and market drugs, from familiar over-the-counter compounds like aspirin to exotic prescriptions that inhibit, activate, or otherwise affect individual molecules involved in specific medical conditions. They also produce livestock feed supplements, vitamins, and a host of other products.

More than 250,000 people work in the pharmaceuticals industry in the U.S. alone; the industry sells over $300 billion worth of drugs each year. A job in pharmaceuticals might mean anything from initial drug development to marketing to final distribution.

Added to all those areas is biotechnology, a relatively new kid on the block. Simply put, biotechnology, the applied knowledge of biology, seeks to duplicate or change the function of a living cell so it will work in a more predictable and controllable way. The biotechnology industry uses advances in genetics research to develop products for human diseases and conditions. Several biotech companies also use genetic technology to other ends, like the manipulation of crops.

Biotech opportunities largely mirror those in the pharmaceutical industry. The key difference is that biotech firms are much more focused on research because they are still developing their initial products. Marketing and sales forces grow when—and if—a viable product nears FDA approval. This means that jobs for nonscientists are scarcer in biotech than in pharmaceuticals.

This is an industry with a potent and promising future. Demand for drugs is growing, fueled by an aging global population and blossoming international markets—Europe, Latin America, and especially Asia are the hot regions. The industry has maintained growth rates nearly double those of the economy at large and is expected to maintain that performance well into the next decade. But take note: Anybody with a genuine interest in pharmaceuticals or biotech should get acquainted with the details of the industry mergers that have occurred in the past decade.

Trends

Alliances
Because the cost of soup-to-nuts drug development is prohibitive, a growing number of biotech companies that once dreamed of competing on equal terms with “Big Pharma”, the handful of multinational giants that dominate the industry, now instead seek partnerships. According to The Pharmaceutical Research and Manufacturers of America report for 2000, the total number of such alliances grew from 121 in 1986 to 712 in 1998.

The nature of these alliances varies: In some instances, a biotech shop exchanges an exclusive license to market and sell a patented drug to a pharmaceutical company that is willing to pay some research costs up front. Such agreements may also include limited use of the pharmaceutical company's manufacturing and distribution channels.

In other instances, a pharmaceutical company makes a cash investment in exchange for a portion of future revenues and/or an equity stake in the biotech partner. This type of relationship is often tied to a marketing and distribution deal like the one described above. As a result, it's not unusual for Big Pharma to have biotech holdings that give them a substantial piece of the action: Novartis, for instance, owns just under half of Chiron, and Roche owns about 60 percent of Genentech.

Consolidation
Big Pharma is in the throes of long-range, large-scale consolidation. "Where there were 200 companies ten years ago, there are now 40," says one insider, "and by 2003 those 40 will become 10. It will be like the auto industry, where a small handful of players dominates the global marketplace." While job losses are predicted to be more significant overseas, particularly in Western Europe, one analyst has suggested that consolidation will lead to a 10 percent further drop in the industry's U.S. workforce. Administrative positions are likely to suffer the most, although manufacturing may also see cutbacks.

The Human Genome Map
The human genome is the sum total of all of the genes that exist in humans—over 100,000. In June 2000, after a bitter race to map the human genome, the federally funded Human Genome Project and the biotech firm Celera set aside their rivalry and announced that they had completed a "working draft." Meanwhile, private organizations such as Human Genome Sciences and Incyte Genomics continue to conduct their own research on the human genome because they can patent commercial uses for every gene that they are the first to sequence and identify in terms of function.

Though skeptics have suggested that genomics work is overhyped, the industry consensus is that it will quickly usher in an era in which we can design and manufacture "rational drugs" that interface perfectly with the body's cellular receptors and yield maximal therapeutic benefits without unfavorable side effects or drug interactions.

Growth
For several years the industry has been growing twice as fast as the rest of the U.S. economy, and it shows no signs of slowing. Since 1980, the percentage of U.S. pharmaceutical sales revenues allocated to R&D grew from 11 to 20.3 percent, compared to 3.7 percent for all industries. R&D expenditures are projected at $26.4 billion in 2000—10 percent more than in 1998, and triple the amount spent in 1990. Several factors will fuel continued growth, including the progression of the baby-boomer population in the U.S. and Europe into old age, a life phase in which people consume four times the healthcare resources of the general population.

How It Breaks Down

Big Pharma
The handful of multinational giants that dominate the industry, known to insiders as Big Pharma, employs tens of thousands of people and sell drugs in every corner of the world. The majority are headquartered in this country, but several are based in Western Europe—particularly Switzerland, Germany, and France. Those headquartered in the U.S. are all located east of the Mississippi—the greatest concentration of home offices stretches along the corridor between Philadelphia and northern New Jersey.

Given the chance, people tend to work at these companies for decades rather than years, as there are abundant opportunities for dynamic careers in every field. In general, life is stable and lucrative: Big Pharma companies take an average of 30 cents in profit for each dollar they get in revenue—twice the margin in most industries. The fly in the ointment is an ongoing wave of consolidations, a trend that seems to be gaining momentum with mergers in 1999 between Monsanto and Pharmacia & Upjohn, between Pfizer and Warner-Lambert, and the announcement in early 2000 of a merger between Glaxo Wellcome and SmithKline Beecham.

One driver for such mergers is that patents are expiring on a significant number of blockbuster drugs such as Prozac and Zantac. When patents expire, the market is opened to competition from lower-priced generic versions of the drugs. Sales can drop by as much as 80 percent, leaving drug companies scrambling to pick up the slack. While some look to consolidate resources through a merger, others believe that signing pacts with biotechs is the best way to shore up their product pipelines.

Diversified Versus Nondiversified Big Pharma
Big Pharma companies can be divided into two categories: diversified and nondiversified. In addition to developing and selling prescription drugs, diversified outfits—which include Johnson & Johnson, American Home Products, and Bristol-Myers Squibb—maintain a wide array of other healthcare-related businesses, such as medical device companies or consumer health product divisions.

Nondiversified operations—which include Eli Lilly and Merck—focus solely on the development and sale of drugs. (Not all such drugs are for humans—Pfizer, widely viewed as one of the most shrewdly operated companies in the business, takes in over $1 billion every year in revenues from its animal health division.)

Among diversified companies, the current thinking favors divesting nonpharmaceutical concerns and focusing on the drug business, which tends to be leaner and more profitable. A heads-up to job seekers who go to work for a nonpharmaceutical division in a diversified company with hopes of getting a foot in the pharmaceutical door: You may wake up one morning to find your job spun off from the parent company.

Biotech Despite the success of such biotech giants as Amgen and Genentech, a large majority of biotech shops are still small enough for everyone to know everyone else’s name. Many biotechs are still in start-up phases, often with single, usually unproven, technologies and no products on (or sometimes even near) the market.

But a growing number of companies are joining an elite group of biotech firms—such as Biogen, Genzyme, Gilead Sciences, and Protein Design Labs—that have received FDA product approval and are in various stages of commercialization. Most jobs in smaller biotech firms are scientific, but these companies also have opportunity in marketing, manufacturing, engineering, and sales. Culturally, even the largest biotechs are more like tiny biotech shops—with leaner, flatter organizations—than like Big Pharma.

Many biotech firms have partnered up with Big Pharma in an effort to shore up cash reserves through the long drug-development process. These deals can take a variety of forms, but often the larger firm underwrites the smaller one’s research in exchange for distribution rights, some portion of future profits, or another combination of privileges. Check into a company’s list of partnerships to better understand what you’re signing up for.

Job Prospects

Total U.S. employment in the pharmaceutical and biotech industry has shrunk slightly as a result of mergers during the '90s, but it still totals over a quarter of a million people, according to the Pharmaceutical Research and Manufacturers of America.

While Big Pharma controls most action in the industry, you can opt to work in some of the more specialized areas of biotechnology, where companies range in size from a handful of employees to several thousand.

Biotech offers a rich array of job prospects. People with all sorts of backgrounds find careers here—not only the scientists you'd expect, but also engineers, businesspeople, computer programmers, and health-care professionals. There is also a growing need in specialized projects for nutritionists, environmentalists, and law-enforcement specialists, among others.

The burn rate—the steep cost of research for the many products that don't make it to market—always affects who gets hired and when so it's important to review this aspect of your potential employers' financials as thoroughly as possible.

Big Pharma companies are good places to work if you like stability. Many people will spend whole careers at a single company, enjoying the traditional accoutrements of corporate life, including generous annual stock-option grants for managers.

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