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The importance of not over-expanding during development, launch.
When the economy is good, companies expand their workforce. This is true across a lot of industries, especially the pharmaceutical sector. Over the past
few years, some companies initially found themselves flush with cash as the pandemic put a spotlight on the industry for investors. Over the past several months, however, the overall economy has started to slow down—fearing of a looming recession—and there’s less funding available for biopharma companies.
Over-expanding during a boom can lead to a variety of problems. The biggest issue is that when the economy tightens, organizations may find themselves in a position where they have to downsize and lay workers off.
Pharmaceutical Executive recently spoke with Greg Skalicky, president and chief revenue officer of Eversana. While the conversation was mainly focused on how pharma companies can utilize outsourcing, he also shares some issues specifically impacting smaller, or emerging, life sciences firms that are focused on developing new drugs. Many of these issues are related to employee costs. Recognizing and understanding them may help leadership teams at these companies avoid having to reduce staff when the overall economy is hurting.
“We met with one pharma company, and they did a deep dive across the entire business as it pertains to commercial,” says Skalicky. “They said that if they were to whiteboard it today, the model they put in place is an exact example of what to not do. We determined that on a healthcare provider basis, they have 15 touchpoints within the organization if they have a question.”
He explains that there are often too many different teams working on an individual product. At another company Skalicky met with, it was discovered that half of the employees working on the same product had never even met each other. This can overcomplicate the process and make solving problems take longer, as it may not always be clear who needs to be contacted. More importantly, high employee costs can put stress on the company’s resources and force them to make cuts if, or more likely when, a launch is delayed. Leadership needs to take these issues into consideration, especially when looking to expand the company or develop and launch a new product. They must consider the financial risks and benefits of hiring people prior to launch to ensure that they can then retain those employees post-launch. Under normal circumstances, this is especially important with new products since market entry can be risky.
“About 70% of product launches fail to meet expectations,” explains Skalicky. “It’s a very low success rate. [There] are about 40–45 FDA approvals each year, with a similar number of clinical response letters [CRLs] administered. If a company receives a CRL, that means they are delayed about 12-18 months from their original launch window. If they have hired staff, they will have to terminate 90% of their employee base the next day.”
As the economy becomes more unsteady, the situation becomes even riskier. Many smaller companies’ revenue streams rely on developing new products to either launch commercially or license out to larger organizations. Investors may be harder to find, and funds will likely be tighter. Unfortunately, there aren’t many ways to speed up the development process; meaning, companies can’t reduce the amount of time they have to cover employee costs prior to launch.
Smaller companies are often focused on developing just one drug or treatment. Having to reduce the workforce at a critical moment can cause serious problems and further delays, which could trigger more financial stress. The current economic climate is a good reminder that it’s important for a company’s leadership arm to avoid constructing overly complex teams with too many moving parts.
“Pharma is one of the most highly regulated industries in the world, and there are no shortcuts that life sciences companies can take in drug development,” notes Skalicky. “You may see digital transformation helping companies be faster at moving products through the process; but at the end of the day, they need to enroll patients in clinical programs to prove that the product is safe and effective. There are things that will speed it up a bit, but there won’t be dramatic cuts to timelines.”
As Skalicky points out, there are no shortcuts to drug development, and companies need a solid workforce to get the job done. Having the discipline to avoid over-expanding during good times will provide life sciences organizations a greater chance to hold onto valuable team members when things slow down.