While a major Massachusetts biopharmaceutical company’s announcement in late May of job cuts has dominated business headlines recently, experts say the true snapshot of what’s going on in the industry lies elsewhere.
Takeda Pharmaceuticals USA Inc. plans to lay off 641 people next month, about 10 percent of its Massachusetts-based workforce, the company said in a statement, citing a reallocation of resources to “promising” late-stage projects as the reason for the decision.
The company is one of several large companies with employees in Massachusetts that have called attention to the financial headwinds the industry has faced in the past few months.
But smaller, private companies, which do not have to publicly announce layoffs, have been quietly cutting jobs as investment capital dwindles in the wake of the pandemic.
Nonetheless, analysts expect a big uptick in the biopharmaceutical industry, especially in Massachusetts.
Downsizing of small private businesses
Dan Gold, president of life sciences recruiting firm Fairway Consulting Group, told MassLive that 97% of companies in the pharmaceutical industry employ fewer than 100 people, with big pharma making up only a small portion of those.
He described biotech as a “barbell industry,” meaning investors split their investments between start-ups on one side and established companies on the other.
Ben Bradford, director of external affairs for the Massachusetts Biotechnology Council, said the industry is “hard to break into.” It takes 10 to 15 years to bring a new drug to market, potentially generating $2 billion or more in revenue with zero revenue, and 90% of drugs fail.
Looking back at the past year in Massachusetts and nationally, “there were a lot of layoffs announced,” said Jeffrey Killen, a partner at Boston law firm Forgley Hogg, which helps emerging biotech companies get to the IPO stage.
Massachusetts, along with California, “emerged as the epicenter of U.S. biopharmaceutical layoffs” in early 2024, with large companies in Boston and Cambridge laying off hundreds to more than 1,000 employees, according to Drug Discovery & Development’s biopharmaceutical layoff tracker.
Still, that’s not the whole picture.
“Large layoffs have been announced, whereas private companies that implement smaller layoffs do not have to announce them,” Quillen said. “Unlike Takeda, the scale of the layoffs is greater than people realize.”
“Most of the job cuts are happening in private companies and small biotech companies. We’re short on cash,” he said.
That trend has continued through the first quarter of this year, according to the Massachusetts Foundation for Biotechnology Education’s (MassBioEd) employment outlook.
Killen said big companies often cut jobs for forward-looking reasons, such as a shift in product types and the resulting need for different scientists, experts and other talent, so Takeda’s cuts, while harmful to those affected, are not a red flag for the industry.
But smaller biopharmaceutical companies, which make up the bulk of the industry, are now cutting jobs to stay afloat, and cuts at one company could have a domino effect across the industry, Gold said.
“You have a trickle-down effect with small companies. When one company goes under, the VCs and the people who invested in that company pull back a little bit,” Gold says. “The next round of investments slows down, so the next company may not get funding as quickly.”
When news of competitor layoffs reaches executives, fear is contagious.
“People are going into panic scenarios, maybe before the reality is there,” and trying to get ahead of the curve by downsizing their own workforces, Gold said.
Biopharmaceutical employees are staying put
Gold said the current economic situation has created a “Great Stay” mentality among currently employed biopharmaceutical workers.
“March is typically a time of high turnover in the biotech industry as people get their bonuses and move on to the next growth opportunity. Attrition rates of 8 to 14 percent are typical,” said the president of a consulting group.
“If you survey the market this year, it feels like one person has been removed from a company and people are very reluctant to move to other organisations unless they have no choice because there is no work. [to go to],” He said.
According to figures from MassBioEd’s outlook report, job openings are down 33% from 2022 to 2023. Recent employment growth has slowed to 2.5% from an average of 7.8% from 2020 to 2022.
Bradford said factors contributing to the hiring slowdown include companies struggling to stay afloat and reprioritizing which pipelines they want to preserve and keep open. Gold said one reason unemployed workers are struggling to find work is because jobs are outsourced during times of turmoil.
Additionally, biotech companies aren’t creating many new positions, but rather “seat swapping” and “top grading,” with only experienced, highly skilled workers being hired as companies pivot, Gold said.
Waiting for capital markets to recover
With the economy still in the midst of a pandemic-induced slowdown and conservative adjustment, “no one knows when” the capital markets will reopen, Killen said, but he sees the potential for a big upswing when they do.
“When things turn around for the biotech industry, this time it could turn around pretty quickly and significantly,” he said.
He likened the lack of investment capital over the past few years to the Great Recession of 2008 and 2009, when many companies cut jobs or closed down. When the economy improved and companies began to perform better, private investors didn’t have the money and companies were slow to raise capital from limited partners.
But this time, “a lot of venture capitalists have money and they’re just waiting to put it to use,” Quillen said.
“Hopefully, once interest rates are cut once or twice, we’ll see some fundraising and then we’ll see this ‘fear of being left behind’ and we’ll see more fundraising activity,” Killen said.
He said a small increase in funding in the fourth quarter of 2023 could be correlated with the Federal Reserve’s hints of a freeze on interest rate hikes and possible rate cuts.
On June 12, the Fed announced it would keep interest rates steady at 5.3%, the highest level in 23 years, according to the Associated Press, but as Quillen points out, a rate cut or two this fall is likely.
“People are hoping that if interest rates are lowered, then financing and licensing deals will come along. So they’re thinking, ‘How can we keep as many employees as we can and hang on to them for that long?'” Quillen said.
“Massachusetts is well prepared to weather a recession.”
Bradford expects to see more private companies go public and is “confident” that increased IPOs will lead to increased venture capital funding and “start the process of growing the ecosystem at a faster pace.”
“Massachusetts is well prepared to weather the downturn and well prepared to make the most of the good times,” he said.
“We expect macroeconomic trends will change and things will improve. This situation won’t last forever so we need to keep an eye on it to make sure we have enough talent. Companies will speed up the pace of hiring,” Bradford said..
Additionally, MassBioEd noted in its outlook report that the Bay State needs to strengthen its student-to-workforce gateway to bolster the industry.
Despite the state’s high concentration of life science graduates, 80% of those with degrees in life science and chemistry choose careers outside of the life sciences.
Initiatives include strengthening training programs, especially in underserved communities, and placing more emphasis on STEM education at the K-12 level.
Worker retention will also be a focus, the outlook states, because demographic data shows that “life science degree holders are at higher rates of leaving the industry as they age, and layoffs in the biotech industry increase the likelihood of further attrition.”
What about budding biopharmaceutical entrepreneurs?
“Times of disruption are times of greatest opportunity,” Gold said.
“It’s actually a great time to start a company right now. If you have an idea that you can get funded with, you have something really great now compared to 18 months ago. I don’t think there was much discipline in getting funding,” he said.
“The best ideas are going to be really good right now because they’re going to be harder to find and they’re going to be more heavily scrutinized. Work on your ideas and make them really solid. The ideas that are easy to implement aren’t going to work right now,” Gold said.