Staff costs dragging big pharma down

By Kirsty Barnes

- Last updated on GMT

Related tags: Pharmaceutical industry

As financial pressures continue to plague the pharma industry,
firms should consider taking more advantage of sourcing staff in
cheap labour markets in order to save a buck.

This was the message of financial analyst Stewart Atkins, speaking at the recent "Change management" meeting in the UK, run by contract sales organisation (CSO) Innovex and the Association of the British Pharmaceutical Industry (ABPI).

As generic drugs continue to storm the market at the expense of branded drugs, the pharma industry is facing staggering losses in sales of $40bn (€31.3bn) over the next two years alone due to patent expiries.

Atkins points out that staff costs are currently carving a large chunk out of drug company profits and this should be a key area of focus in the industry's bid to cut costs and offset eroding sales.

"Approximately 35 per cent of costs in the industry are employee costs, representing about 25 per cent of total sales - on average about $100,000 per person,"​ said Atkins.

"Sales per employee are now $350,000, but a 25 per cent cut in drug prices would see profits per person shrink dramatically to $12,000."

The average large drug company in Europe employs 84,000 people to the tune of $7.8bn a year.

Atkins mused that if 70 per cent of production staff, 30 per cent of R&D staff and 20 per cent of admin staff were used from cheaper markets such as India and China, $1.1bn a year could be saved, adding four per cent to profit margins.

"Although highly unlikely in the near term, this scenario should certainly be considered by pharma firms when it comes to making new investment."

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