Looking for Clues to a Sustained Biopharm Resurgence? Check Out the Job Picture

February 1, 2004
Brian O'Connell

BioPharm International, BioPharm International-02-01-2004, Volume 17, Issue 2

On Wall Street, accurately predicting the future is the Holy Grail. At the end of the day, the traders and investors who come closest to guessing what will happen one hour, one day, or one week down the road are the ones who go home winners.

On Wall Street, accurately predicting the future is the Holy Grail. At the end of the day, the traders and investors who come closest to guessing what will happen one hour, one day, or one week down the road are the ones who go home winners.

What Wall Street would prefer you don't know is that it's very hard to predict the future. Nobody in the business can really do it. That's why the real money made on Wall Street isn't earned by predicting the future. It's made by convincing others that you can, which explains the trading commissions, the mutual fund fees, and all the other costs that customers pay to keep Wall Street-types flush. After all, Gucci loafers and Cohiba cigars aren't cheap.

I stand by the maxim "Never make predictions - especially about the future." I'm skeptical of anyone who says they "know" what's going to happen in the financial markets. However, I do believe there are clues that are helpful in monitoring the economy and financial markets. In the biopharm world, beefed-up pipelines, favorable judicial rulings or government regulations, and hefty research and development budgets are often precursors to increased financial performance - sooner or later - for a given company. That means I might buy some of that company's stock.

Table 1. Global biotechnology industry 2002

Alternatively, if I see dragged out federal regulatory approval processes or revolving door managerial changes, I'll probably sell that company's stock.

One bellwether indicator of biopharm's industry-wide, long-term growth is the job picture. Specifically, employment spikes of 10% or more, in one direction or another, over a short period of time are a solid portent of the industry's fortunes over the next year or more.

Employment figures mean just about everything in any industry. Such figures tell us how healthy an industry is, how much confidence it has in its future prospects, and how much demand there is for its products and services. That said, job numbers aren't the only criteria to examine. Obviously, stock prices, sales figures, and growth rates matter as well. Less obvious are upticks in venture capital money, the amount of stock "buyback" activity (the amount of its own stock a company buys on the open market), and the buying and selling activity of individual company decision-makers. Add to that list registration activity at industry trade shows. The Biotechnology Industry Organization (BIO) reports solid numbers at its most recent show, with $4,000 booths going like hotcakes. Fifty booths alone at BIO 2003 were earmarked for signing up prospective job-seekers. That's a good indicator that biopharm is back on its feet.

The Confidence Factor

But, all things being equal, job figures offer the best glimpse into the industry's future. Of the reasons given above, the confidence factor is the most important. Based on that yardstick, the economic picture for biopharm seems downright rosy as we hit 2004, especially compared to 2001 and 2002. Let's take a look.

According to a recent industry report from Ernst & Young entitled "Beyond Borders," the number of worldwide employees in the biotechnology industry hit 193,753 in 2002. Of that number, 142,900 were US employees, with Europe, Canada, and the Pacific Rim accounting for the rest (Table 1). Job growth in the US and Asia spiked upward, while employment rates declined in Europe. In 2002, total worldwide revenues - the stuff that jobs are made of - rose 15% to $41 billion, while R&D spending rose a whopping 34% to $22 billion (Table 2). According to BIO, biotech firms spent $133,600 per employee on R&D in 2001.

Table 2. Global data comparison

A 2004 Boom?

Firm numbers for 2003 are also beginning to crop up, leading one to anticipate even higher employment in 2004.

According to Standard & Poor's equity research services, biotech industry growth rates will rise even higher in 2003 and 2004, to 20% from 10% in 2002, thanks to strengthening positions in areas like cancer and autoimmune therapies and in less-obvious areas like SARS and West Nile Virus treatments.

According to Frank DiLorenzo, biotechnology analyst for Standard & Poor's equity research services and author of the survey, "Growth catalysts for the next several years will include continued revenue gains for entrenched biotech medications, a ramp-up in sales of newly approved therapeutics, and a promising industry wide pipeline that should generate future approvals by the US Food and Drug Administration."

Capital spending, especially in terms of R&D outlays, is the best barometer that industry payrolls are being beefed up, and with them, the prospects for solid, long-term economic growth. If Ernst & Young is on the money, then the 34% increase in spending on R&D points to an obvious need for more bench scientists and chemists to conduct research, more software engineers to crank out clinical application programs, more analysts to measure results, and more managers to oversee the whole enchilada.

The most significant hiring trend, in the pharmaceutical sector at least, is for developmental specialists like pharmacologists and formulation scientists. On the biotech side, firms are looking for business development specialists who can help biotech firms move from research outfits to product providers. Once products are up and out of the pipeline, industry experts say that intellectual property and regulatory affairs specialists will find themselves in high demand to protect companies' huge investments. Strategic alliance professionals will also be in demand as drug companies ramp up efforts to find smart business relationships to gain even more market share and pump up company stock prices.

The number of industry start-ups that are now gearing up is a pleasant surprise. Industry observers say the number of new biopharm companies hasn't peaked this high since the salad days of the mid-1990s. With more venture capital money winging about, the number of start-ups should continue to rise well into 2004, bringing the industry labor picture into an even sunnier climate.

Another key to the job picture - one that the US Bureau of Labor and Statistics looks at - is temporary staffing. National temporary staffing firms, such as Manpower and Kelly Services, report heavier than usual contract job activity after the capital spending uptick in the biopharm sector. The big Internet job boards are also rumbling back to life. Monster.com reports double-digit growth in biopharm hiring in late 2003, driven in part by hiring activity in information technology.

What does it all mean?

For starters, the increase in capital spending and subsequent spike in new hires mean that the biopharm industry is healthy and getting healthier.

For investors, that means less worries about "stock picking" and more investment opportunities to choose from.

In other words, less risk with a better chance of reward.

And remember: on Wall Street, finding rewards with lower risk is Job One.

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