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The Biggest Loser In The Pharma M&A Phrenzy Is...

Tyler Durden's picture




 

Unless one has been living under a rock for the past several months, one knows that the latest manifestation of the global stock bubble is that US pharmaceutical companies, using their overvalued stock prices as currency, have engaged in an unprecedented M&A phrenzy (sic), buying up targets either to redomicile themselves abroad and thus avoid paying US corporate taxes, or simply to buy up assets before someone else snatches potential targets, in a classic case of FOMO (Fear Of Missing Out). And while this acquisition spree is a boon for shareholders, with the euphoric market rewarding both target and acquiror by sending their stock prices immediately higher, there is one group that is getting the shaft: employees.

As the WSJ reports, when it comes to drug mergers, the stock price may rise and fall, but one thing is certain - layoffs. Take the case of Pfizer: according to the WSJ, since 2005, Pfizer has eliminated more than 56,000 jobs world-wide—a number roughly equal to the population of a large suburb. It adds, correctly, that "More job losses could be on the way."

Here is a chart of Pfizer's headcount over the past 15 years:

And if indeed Pfizer pulls off its proposed headquarters-shifting acquisition of AstraZeneca, which is set to be the largest pharma M&A deal in history at well over $100 billion, especially considering the just announced sweetener overbid by Pfizer taking the purchase price to $106 billion, then the total workforce of the two companies is sure to be far smaller than the sum of the parts.

WSJ reports that the M&A activity has pharmaceutical employees nervous. A large number of layoffs over the past decade has already forced many big-pharma workers to seek jobs elsewhere.

More on the plight of pharma employees:

Some have found it hard going. Scott Nass, 49 years old, lost his job as an account manager for Roche Holding in Nutley, N.J., in 2009, when Roche gained full ownership of Genentech Inc. After a two-year stint helping Princeton University raise money to support academic research, Mr. Nass is now a substitute high-school teacher and looking for full-time work.

 

Mr. Nass said he finds it hard to get back into the health-care business. "I am quite bitter. It's been a painful process and I am disillusioned as to how decisions are made in the industry," he said.

 

Others have remained in the industry—often finding work in smaller drug companies or in contract research organizations, which conduct clinical trials for pharmaceutical companies.

 

* * *

 

"At big pharma, you struggle to have that feeling of being an owner and not just an employee," he said.

You sure do, and soon enough, to make sure the company shareholders make even more (by paying less taxes) upon the move from NY to London, the employees will struggle even more, with the unemployment line.

Pfizer said Monday it would achieve "synergies" with the AstraZeneca deal if it comes to fruition, including in the combined companies' businesses in cancer and cardiovascular drugs. Pfizer didn't quantify the expected savings.

 

Pfizer has squeezed cost savings out of past megamergers. After its $68 billion acquisition of Wyeth in 2009, Pfizer closed six of 20 research sites world-wide, including in New Jersey, New York, North Carolina and the U.K. Pfizer currently has more than 77,000 employees.

Pfizer is not alone:

Job cuts also could result from other recently announced deals, including an exchange of assets between Novartis AG and GlaxoSmithKline and Novartis's plan to sell its animal-health division to Eli Lilly

 

Some industry experts think pharmaceutical companies have already cut so much that further large layoffs are unlikely.

 

"I just don't think that these companies are as fat as they were five years ago," said Dan Mahony, a health-care fund manager at Polar Capital in London.

Unlikely? One actually doubts the ability of management teams to cut even more into the muscle in the name of the all important (non-GAAP) bottom line? Let's follow up in one year.

The bottom line: "Since 2009, the pharmaceutical industry has announced more than 156,000 job cuts in the U.S. alone, according to Challenger Gray & Christmas, a company that big firms hire when they're laying off employees, to help them find new jobs."

And who is the driver of this epic "synergy-driven" headcut reduction? Why the Fed of course, because while on one hand it has made pharma stocks reach unseen highs (and thus server as great M&A currency) with its trillions in liquidity injections which have bypassed the economy entirely and made their way straight into the stock market, and on the other thanks to ZIRP, it has cut the cost of debt so low that if stock is not an attractive purchase currency, the acquiror can simply fund the deal with ultra-cheap debt, all Bernanke, and now Yellen, have done is enabled shareholders and management teams to slash and burn their way to M&A nirvana, in the process laying off hundreds of thousands.

But wait, wasn't the whole point behind QE to stimulate job creation, not crush it?

Why, yes. Yes it way. Ain't unintended consequences grand?

 

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Thu, 05/01/2014 - 13:09 | 4716676 Dorelei
Dorelei's picture

With a compensation plan payed in Viagra and Zoloft everything will be ok ...

Thu, 05/01/2014 - 13:18 | 4716709 max2205
max2205's picture

And taxpayers

 

Revenue is taxes....now they want tolls on highways and let phizer off the hook

 

We are totally fucked

Thu, 05/01/2014 - 14:27 | 4717010 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

More corporations on their way to self-destruction and eventual extinction. Our ruling classes have lost all sense.

Thu, 05/01/2014 - 13:23 | 4716737 LawsofPhysics
LawsofPhysics's picture

Exactly!!

Those "tolls" are not going to be very effective when nobody can afford to fucking go anywhere...

"winning"

Thu, 05/01/2014 - 13:23 | 4716738 Xibalba
Xibalba's picture

and they'll all qualify for benefits from Uncle Sam

Thu, 05/01/2014 - 13:22 | 4716731 maskone909
maskone909's picture

great news.  as the pharmacuitical industry consolidates into one gicantic drug dealer, we can rest assured that they have all of our best interests at heart.  And to meet the demand of the obese, cancer-ridden, diabetic hypertensive consumer, the board members of such companies are also integral in the drug aproval process, being that they are also policy makers in the FDA! 

Thu, 05/01/2014 - 14:02 | 4716901 TBT or not TBT
TBT or not TBT's picture

Thank god for the food pyramid and Michelle Obama and the packaged foods business for their generous support of research that goes their way. Without all that, the market cap of these pharma and medical companies would be a shadow of what it is. It's the biggest broken window out there, the American publics metabolism.

Thu, 05/01/2014 - 13:29 | 4716757 Tasty Sandwich
Tasty Sandwich's picture

At least with the old tricyclic antidepressants and barbiturates you could just down the month's supply with a few shots of whiskey and fall asleep for good.

Now it's almost like a joke when people take all their Xanax or Zoloft at once.  But, the customer base is more secure now.

Thu, 05/01/2014 - 17:03 | 4717672 Kirk2NCC1701
Kirk2NCC1701's picture

Don't you need just a few drugs?  Soon it won't matter, because...

‘Devastating’ implications of drug-resistant superbugs now a reality – WHO

http://rt.com/news/155900-superbugs-un-antibiotic-resistance/

Thu, 05/01/2014 - 13:10 | 4716683 pods
pods's picture

In every industry it is the same. It is like the end of the game of monopoly.

I thought it was bad when Pfizer bought Wyeth merely because they had the cash and no pipeline.

This is huge but not surprising.

And no different than other companies with cash or cheap credit up to their eyeballs that are buying out anyone and everyone that might pose a threat.

pods

Thu, 05/01/2014 - 13:13 | 4716693 666
666's picture

Hoffman-LaRoche in NJ is closing. Their property in Clifton & Nutley is like a small city, and there will be a significant loss in property taxes. Some employees are being transferred to other locations, but the company is mostly moving their operations to Europe. But I'm sure it has nothing to do with their income and other taxes.

I can't wait to see what is built in its place: moar shopping malls and condos, probably, to make the quality of life even more miserable for the local yokels. Retail jobs are always better than high-paying pharma ones, according to Obummer's plans...

Thu, 05/01/2014 - 13:31 | 4716771 Big Corked Boots
Big Corked Boots's picture

Not much will be built there because the ground is horribly contaminated. I know, I used to do work there. I can show you the places we would dig holes in, come back the next morning, and find little droplets of mercury in the pit.

Thu, 05/01/2014 - 13:58 | 4716882 NotApplicable
NotApplicable's picture

So... you're saying it's a prime location for golf courses and country clubs?

Thu, 05/01/2014 - 14:29 | 4717024 666
666's picture

Hoffman-La Roche appears to be a class act; they should be, with all the money they make. They are voluntarily continuing to pay taxes, even though they have vacated the property. They helped employees relocate and find new jobs, and will clean up and decontaminate the land, according to the local news that's following this closely. The local governments don't want shopping malls or condos, but every other manufacturing company in the area that left ended up with them. I don't have my hopes up on this.

Thu, 05/01/2014 - 13:17 | 4716704 Kelley
Kelley's picture

Pfizer's new tag line might be this:

"Ask your doctor if 'moydering' patients and employees is right for you."

Thu, 05/01/2014 - 13:19 | 4716712 Flakmeister
Flakmeister's picture

Another triumph for modern capitalism....

And politicians talk about the importance of job creation.....

\facepalm....

Thu, 05/01/2014 - 13:21 | 4716721 LawsofPhysics
LawsofPhysics's picture

Shit, that's easy.  With cronyism/fascism the biggest loser is always the taxpayer...

Thu, 05/01/2014 - 13:21 | 4716722 Seasmoke
Seasmoke's picture

Biggest loser is New Jersey.....and that's going to trickle all the way to the public takers pension ponzi.

Thu, 05/01/2014 - 13:28 | 4716756 Big Corked Boots
Big Corked Boots's picture

Agreed. No housing recovery in NJ because without a job, you might as well live in a culvert. The municipalities and certainly the school boards don't get this yet... the board in my former town just voted to extend full-time benefits to all of their part-time teachers, at a cost of $700k per year.

Thu, 05/01/2014 - 13:24 | 4716746 Ranting Troglodyte
Ranting Troglodyte's picture

It seems to me that M&A used to be (at least in theory) to create "synergy" or some such concept as the whole is better than the sum of the parts. 

 

Now it just seems to be so that half the employees can be fired...oh, and to enrich a few elite shareholders.

 

Forward.

Thu, 05/01/2014 - 13:28 | 4716752 kevinearick
kevinearick's picture

M&A does not qualify as an ongoing concern. That surprises who?

Reaping & Sowing

So, as you can see, if you look at the data, the legacy 1% cannot exist without the top tier of the middle class – doctors, lawyers, school administrators, automators, etc, which is all make-work, artificial control of breeding patterns, but it can exist without the rest of the middle class. You make the rough adjustment of system gravity to the extent you feed them. All the Fed can do is print money, and all government can do is control wages, for the purpose. That’s it. Some people’s money is worth more than others.

Very few individuals exist purely in one middle class event horizon, but they will defend their event horizon against all outsiders and they do compete within the horizon, for the spoils of corruption and economic war, in demographic booms and busts fed by ignorance. If you are unique and productive, you can enter and exit at will, but inside the horizon you must appear to accept its assumptions or you will get smashed. To the extent you travel through the horizons, economic mobility is adjusted.

If you adopt habits which both appear to be productive within the empire and relative to nature, you need only invest 10% of your time to employ its gravity, but what we are really talking about is the propulsion drive required for space travel. Seek and you shall find. The trick to finding the needle in the haystack is to be the needle.

The empire is not growing market share in a collapsing economy by accident. You are successful to the extent others choose you to be. Take care of your seed and don’t plant it in crappy soil. Appreciate what you have been given and you will be given more.

The majority will wait while others take the risk and do the work, adopting whatever priest offers the religion to justify stealing it, which works in your favor, if you move forward. Don’t expect labor to concern itself with the losers, or winners, of empire stupidity. It’s about the DNA; intelligence is a perception and knowledge is a derivative.

Thu, 05/01/2014 - 13:35 | 4716785 realitybiter
realitybiter's picture

Opharmacare

 

Couldn't happen to a more deserving group of useful idiots.

I'm sorry, but having a constructive conversation with pharma salespeople has been tried and failed way too many times....just keep pushing those pills that folks don't need, because you get paid, and think nothing of it....until you are unemployed.

Great, maybe this free time will give you some opportunity to for real thought.

Thu, 05/01/2014 - 13:39 | 4716799 Lord Koos
Lord Koos's picture

I'd feel more sorry for the end users than the workers: http://www.bloomberg.com/news/2014-04-30/drug-prices-defy-gravity-doubli...

Thu, 05/01/2014 - 14:14 | 4716952 Cthonic
Cthonic's picture

More opportunities for the little people: smuggling and clandestine labs.

Thu, 05/01/2014 - 13:41 | 4716801 Fuh Querada
Fuh Querada's picture

@Lord Koos, correct

The issue will be increasing global pressure on the end sale prices of medicines.

Does anyone think that $84000 for a 12-week course of treatment of Hepatitis C, or >$100 000 a year for cancer treatment with certain monoclonal antbodies will be sustainable when Medicare & Medicaid are bankrupt, Jim Willie's Scheiss dollar is introduced,  and no-one can afford the premiums for medicines coverage on 0zer0dontcare?

Only the 0.01% will be able to pony up the absurd US prices for patented medicines when this is all over.

Thu, 05/01/2014 - 13:43 | 4716820 Fix-ItSilly
Fix-ItSilly's picture

Nah...  its the pharma customer that is going to have to pay for the Wall Street finance manipulation.  Pharma has become a protected monopoly that Wall Street is now exploiting.  WS did the same with electrical power - see TXU for a glimpse of tomorrow in Pharma!

Thu, 05/01/2014 - 14:00 | 4716889 Hongcha
Hongcha's picture

I have had PFE since the 22's in 2007 or so.  Was unhappy for a long time.  I will never use their products, preferring cannabis and Vitamin C for virtually anything coming my way.  I just see it as a cash cow.

"They don't want you not to use drugs.  They want you to use their drugs."  -- Chris Rock

Thu, 05/01/2014 - 14:02 | 4716892 all-priced-in
all-priced-in's picture

Based  off the comments - some of you must think paying less in taxes and getting a job done with fewer employees are bad things.

But I doubt may of you are paying more in taxes than you are required to pay - and I also doubt you have any employees at all.

I guess these opinions qualify you to be a member of congress or a Hollywood actor and be a member of the hypocrite class.  

Do what I say - not what I do.

When you down arrow this at least have the balls to say why you think others should pay more than legally required to in taxes - and have extra employees on the payroll - when you don't.

 

 

 

 

 

Thu, 05/01/2014 - 15:04 | 4717140 Cthonic
Cthonic's picture

Ok I'll play all-priced-in, whose comments are you referring to, specifically?  I have zero employees, have in-laws who worked for Pfizer in the past who bolted to other firms within the past three years, and am quite familiar with the financial engineering being undertaken.  I'll wager that the combination fulfills several goals: allows them to tap the debt markets again (rollover), axe a bunch of employees they no longer desire, shutdown as much footprint as possible in US territory, redomicile overseas, renegotiate drug prices with state organs, lower effective tax rates, and reset growth metrics (market expectations and executives' options) while desperately scooping up some patents to maintain pricing power.  The number of available large prey for this sort of financial engineering is dwindling, however.

Thu, 05/01/2014 - 14:51 | 4716904 khakuda
khakuda's picture

It was always a joke that the Fed claimed to be creating jobs with their policies, but they never mention the offset, that zirp has created more M&A which typically leads to firing.  Or that savers have less money to spend, meaning jobs disappear when those dollars are not spent.

Valeant is the poster child of the Fed's so-called job creation model.  Game the tax code to get a 4% tax rate, use zirp funded free money to outbid everyone else to buy up other healthcare companies, then cut staff and R&D to zero to reap earnings accretion and a higher stock.  Rinse.  Repeat.  Hello profits, goodbye innovation and jobs.

Thu, 05/01/2014 - 14:21 | 4716981 RabbitChow
RabbitChow's picture

I had a friend some years back that went to work for Pfizer.  What a joke.  The company treated the employees like they worked for the coal mines -- you were expected to live in the company housing, which was decades old, using oil heat, and heating bills in the winter were tremendous (this was in Groton).  Of course you had to buy everything from the company and eventually you would 'own your soul to the company store'.  They didnt pay much as I recall either.  I interviewed with them -- I had a nice suburb of CT picked out and of course I would be living near the lab managers.  I guess I was a little too proud for that outfit.  Well, no loss.  Some have had slightly better memories from the corporate side of things, but Pfizer typically used scientists until they were in their mid 40's to 50's and then get rid of them anyway they could.  That way they wouldn't have to pay a company pension, lol.

Thu, 05/01/2014 - 14:30 | 4717027 chunkylover42
chunkylover42's picture

Pfizer has spent over $240bn on acquisitions since 1999 to create a company with a market cap of $200bn today.

Thu, 05/01/2014 - 15:03 | 4717148 MrPalladium
MrPalladium's picture

Classic!!

Absolute classic!!

Thu, 05/01/2014 - 15:44 | 4717357 l8apex
l8apex's picture

I resemble this story...  Been in clinical research since '94 and laid off 3 times and quit twice when the writing was on the wall.  I have been fortunate to be able to find another position, but after the last layoff in '09 it took me 6 months to find the next gig.

To all of you who write off the business as unethical and supporting people's bad habits, then don't buy what pharma is selling.  But don't come bitching about the price of the future Alzheimer's cure when you've been diagnosed...

So it goes.

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