Do Mass Tech Layoffs Mean the Same for BioPharma?

Silicon Valley

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The tech industry and the life sciences have converged more in recent years than ever before. One report estimates the pharma industry will spend $4.5 billion on digital transformation by 2030; another predicts that by 2025, spending will top $3 billion on artificial intelligence alone. 

It stands to reason, then, that with over 100,000 tech employees laid off just one month into 2023, many are likely wondering if biotech layoffs will reach similar peaks.

What decisions led the tech industry to resort to these drastic cost-cutting measures?

What Goes Up Must Come Down

The mass layoffs in the tech industry can be traced back, in part, to the COVID-19 pandemic and the resulting rise in software and tech platforms that were built to accommodate a remote society, Joe Mullings, CEO of The Mullings Group, told BioSpace. 

“The tech sector over-hired during COVID for a number of reasons,” Mullings said. “One is that ‘The Great Resignation’ was going on, so people were hedging their bets there.” 

Another reason, he said, is that tech companies are competitive–they don’t like to lose candidates to another company. 

“So, that drives high retention salaries and bonuses, which continue to artificially and inappropriately inflate salaries,” he explained. 

This is reflected in the data. According to reporting by the Wall Street Journal, U.S. employers posted 1.1 million tech jobs in the first quarter of 2022–an increase of 43 percent from a year earlier. As demand for workers to fill those jobs grew, companies began to offer much higher wages, with many increasing by 20 to 30 percent. 

Now, Mullings said, those companies can no longer sustain the rise in pay, and they have begun to trim the fat. 

One Man’s Layoff is Another Man’s New Hire

Sheila Rocchio, chief marketing officer at eClinical Solutions, told BioSpace she has experienced the effects of this wage inflation firsthand.

“That has been kind of our top challenge over the past few years–competing for really good engineers and software developers,” Rocchio said. 

However, she views the tech layoffs as an opportunity to hire both experienced and early-stage candidates for the areas they’re currently investing in, like software and product development. 

Rocchio expects to see some layoffs in the pharma sector, albeit on a much smaller scale, that serve the same purpose–prioritization.

A Mckinsey study published Feb. 1 shows companies that actively rotate and reprioritize their portfolios through programmatic M&A and partnerships typically outperform their peers and achieve higher total shareholder returns. Similarly, it found that divestiture activity has also increased as biotechs prioritize innovation. 

As companies execute these restructuring initiatives, she said, there will likely be some shedding of talent. 

"I think we’ll also see different types of companies growing and scooping up some really great technology leaders…I think the life sciences space is really well positioned to take advantage of this influx of talent that's available.”

A Temporary Problem

Both the tech and life science industries rely on outside funding and investors, but Mullings said one key difference between the two is that historically, publicly traded tech companies largely follow the flow of the stock market. 

When the market becomes unpredictable, tech companies take note and look for ways to cut costs. But biopharma tends to be more proactive and less reactive, due to the time and resources it takes for a drug to make it from preclinical research to the FDA. 

“Once you're down the pathway as a biotech or med-tech company, you're pursuing science, not revenue. You've got to stay on that pathway.” 

He compared these early-stage biotechs to sharks–they have to keep swimming or they’ll die, regardless of how the broader market is faring. 

Like Rocchio, Mullings emphasized the influx of tech talent into the life sciences. He argued this stability does not go unnoticed, and it will likely be enticing to tech candidates. 

“We’re seeing it now,” he said. “Software engineers, systems engineers, firmware engineers, robotic engineers are starting to come into med-tech because they know it's as recession-proof as any other [non-tech] industry.” 

For the biotechs that can afford the talent, this influx of qualified tech candidates is likely to accelerate innovation and advancement.

“We just have to work through it,” Mullings said. There’s so much money waiting to be invested,” as long as the industry can make it through the next few months. After that, “We’re going to settle into a better, stronger second half of 2023.” 

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