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.

 

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"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?