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Deloitte Finds NJ Lost 1,400 Pharma and Med Device Jobs in 2008 Amid Rising Economic Impact

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By Alex Philippidis

Industry contraction, plus the ongoing economic upheaval, combined to reduce the number of biopharmaceutical and medical device employees in New Jersey last year, despite generating more overall spending in the state compared with 2007, according to an industry report released this month.

A total 59,948 biopharma and med device jobs were based in the Garden State in 2008, according to Tough Medicine in Tough Times: New Jersey and the Biobiopharmaceutical and Medical Technology Industry, a report prepared by Deloitte for the HealthCare Institute of New Jersey, a Bridgewater, NJ, group whose members include biopharma giants as well as medical device makers.

The work force figure is down more than 2 percent from the 61,347 employees counted by Deloitte and HINJ a year earlier, and 3 percent from the 61,971 recorded in 2007.

Hollie Gilroy, a spokeswoman for HINJ, told BioRegion News Tuesday that the roughly 1,400 jobs lost year-to-year in the med device and biopharma industries reflected the impact of the weak economy, as well as the industry-wide contraction of jobs stemming from mergers and acquisitions of the industry's largest companies in the state.

Both trends could not be fully reflected in the results, though, because the survey process began in September, and data was collected through December 2008. That period is just when the global economy plunged into financial turmoil, and just before news was announced of two biopharma megamergers — Pfizer's $68 billion acquisition of Wyeth, and Merck's $41 billion purchase of Schering-Plough.

HINJ’s figures include some biotech jobs as well as pharmaceutical and med device jobs. A more focused study of New Jersey’s biotech jobs is compiled in a separate annual study by the state’s biotech industry association, BioNJ. A spokesman for that group, William O'Donnell, told BRN on Monday, that study is in process of being updated.

In addition to measuring the number of "direct" jobs like those at biotech and biopharma employers, the survey also measured the number of indirect "spinoff" jobs in other fields that are attributable to the presence of life-sci employees. Even as direct jobs dipped year to year, jobs attributable to indirect spinoff economic effects — from construction of new facilities, to purchases by biopharma and med device employees — rose almost 7 percent last year, to 87,888 in 2008, from 82,376 a year earlier.

As a result, the report concluded, the overall economic impact of the biopharma and med tech industries climbed 9 percent over 2007, to an all-time high of $29.5 billion from $27 billion.

In an interview Tuesday, Gilroy acknowledged the rise in spinoff jobs reflected the fact that many biopharma giants laid off full-time staffers, only to bring them back as consultants or per-diem workers, who are deemed to hold indirect jobs. As companies cut their workforces, many stepped up outsourcing of formerly in-house functions to contract research organizations and other businesses.

"If you reduced your full-time headcount enrollment, but there are projects and functions that still need to be performed, either a company is outsourcing that work to a vendor, or in some cases, people who are getting buyout packages might be getting hired back as contractors," Gilroy told BRN.

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According to the report, about half the spinoff jobs (40,133) supported the spending of disposable income by biopharmaceutical and medical technology company employees in 2008, while 28,891 jobs supported the purchase of goods and services from vendors, and 18,864 jobs, capital projects.

Between 2007 and last year, employment tied to disposable-income spending by biopharma and med tech employees rose almost 17 percent, or some 6,000 jobs, while jobs tied to vendor activity climbed by 13 percent, or more than 3,000 jobs. Those gains more than made up for the loss of roughly 4,000 jobs tied to capital projects, a 16 percent drop.

Even with the layoffs of the past year, Gilroy added, the biopharma and med device industries remained a key engine of New Jersey's economy in 2008, and the industry has continued to step up its new construction and purchasing activity — an expense that rose during 2008 by 22 percent over 2007, to $823 million from $674 million.

"We're still a medicine chest. We're still an important part of New Jersey, both as a contributor to the state of human health, and as a contributor to the bottom line of the economy," Gilroy said.

However, job shedding among New Jersey biopharma and med tech employers has continued into 2009. Between January and May, seven biopharmaceutical companies notified New Jersey's Department of Labor and Workforce Development of plans to eliminate a combined 579 jobs, according to a BRN check of WARN notices filed with the state.

The Deloitte/HINJ report confirms an employment trend seen a month earlier in a Milken Foundation report on the 11-county Greater Philadelphia region, which includes five southern New Jersey counties — Burlington, Camden, Gloucester, Mercer, and Salem. Milken recorded a 12 percent drop in regional biopharma employment during 2007, to 26,417 jobs from the 30,028 jobs recorded in a 2005 report.

Asked if there was a correlation between the amount of indirect spending and the number of jobs in those sectors, Gilroy replied, "Probably. What's happening with capital construction is, in general, as you go through a recession, you're re-evaluating your capital plans year-to-year. There's always going to be maintenance and renovations, things that need to be done.

"New construction may be the thing that's sidelined for a while until we get into a recovery phase of the economy," Gilroy said.

That would reverse what the Deloitte/HINJ numbers showed took place during 2008, when, in addition to the jump in construction and purchasing , companies also cut back on renovation and maintenance capital costs by nearly 25 percent, to $793 million in 2008 from almost $1.1 billion the previous year.

The slumping economy and equally slumping biopharma industry were also reflected in other report statistics — namely a 5 percent falloff in research and development activity, to $7.5 billion in 2008 from $7.9 billion a year earlier; and a 6 percent dip in capital spending, to $1.6 billion last year from $1.7 billion in 2007.

Gilroy said capital spending is projected to slip another 6 percent in 2009, though still remain about $1.6 billion. That number does not figure in the $787 billion American Recovery and Reinvestment Act, the economic stimulus measure enacted in February by President Obama.

Asked how ARRA will affect this year's capital spending by biopharma and med device companies, Gilroy replied: "That's for the economists and people who study that to determine," since most capital spending by biopharma and med device companies is privately generated, except for companies that receive state economic incentive packages tied to future job-creation promises.

Two additional signs that the current economic slump and consolidation have taken their toll on New Jersey biopharma and med device companies: The number of trials for new biopharmaceutical products fell 15 percent year to year, to 4,765 last year from 5,570 in 2007. Falling faster is the number of medical device trials, which plunged 40 percent to 78 in 2008 from 130 the year before.

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Declines like these help explain a policy shift disclosed by New Jersey's top science official last month. Addressing the Licensing Executives Society's New Jersey Chapter in Basking Ridge, NJ, Peter Reczek, executive director of the New Jersey Commission on Science and Technology, said the state would position itself going forward as an ideal location for conducting clinical trials, rather than its previous strategy of promoting itself as a mecca of stem cell research.

That effort could prove valuable to pharma and med device companies, Gilroy told BRN, if greater care was taken to connect companies with clinical trial venues.

"What we found here in New Jersey, just through the research universities, [is that] a lot of people don't know how to access them. They don't know where they are. There's really no central repository," she said.

That need remains, Gilroy added, even though "in general, there have been great strides both among the research-based universities and the other research-based organizations in New Jersey, as well as the pharmaceutical industry, to make clinical trials more accessible, and build better awareness of the process. It remains to be seen how we're going to move forward."

Gilroy offered two reasons why companies are testing fewer new drugs or devices: A greater focus than ever on prospective products within their disease specialties, and because of the increased, post-Vioxx scrutiny given to those prospects in recent years by the US Food and Drug Administration.

"Companies are just working smarter about where their targets are going to be, where those things fit in relation to their product portfolio. There's just a precision focus on where research is going to occur," Gilroy said. "In terms of breakthrough medicine, all the quote-unquote low-lying fruit has already been discovered, and the science is getting harder. And certainly, just bringing a product through from bench all the way to the marketplace — clinical trials, FDA approval — it's becoming expensive, it's becoming a very long process, and it's becoming difficult to now pass very, very rigorous safety standards.

"That's not to say the industry is not for safety. But we have to strike a reasonable balance between patient safety concerns and bringing products that could really benefit a great population of people affected with a particular disease," she added.

"While the biopharmaceutical and medical technology community remains New Jersey's premiere industry, this year's report serves as a stark reminder that we are not immune to global economic downturns, or to significant changes to the business model," HINJ President Bob Franks said in a statement following the June 18 release of the 17-page report.

Tough Medicine in Tough Times is the 12th annual study of the biopharma and medical-device industries commissioned by HINJ, and reflects answers from a survey of 22 HINJ member companies.

Another finding cited in the report is an uptick in charitable giving. HINJ members spent $4.5 billion on global charitable contributions in 2008, up 10 percent from 2007. Of the overall figure, 5 percent ($221 million) was estimated to have benefited New Jersey causes.

Gilroy said the uptick reflected increased product donations, and not image polishing in response to President Obama's effort to overhaul the nation's healthcare system — as some argued earlier this week about the agreement reached by the Pharmaceutical Research and Manufacturers of America with President Obama and Congressional leaders. They agreed to spend $80 billion over 10 years to lower the cost of prescription drugs for senior citizens on Medicare, and pay more in rebates for certain drugs under Medicaid, with some of the latter savings usable toward a healthcare reform plan.

"That's unfair," she said of the image-polishing argument. "The industry has always been far and away, among private industry, a great corporate citizen, whether it has been arts initiatives or education initiatives, or things in the local community, or contributing to medicines against scourges of great epic proportion in developing Third World countries. People would be hard pressed to criticize [this] industry for its philanthropic disposition."

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