In an era of profound transformation, how can pharmaceutical companies survive?

According to reports, from September 2021 to the present—over a six-month period—more than 30 pharmaceutical companies worldwide have announced workforce‑reduction plans. Two-thirds of these cuts occurred in the most recent quarter, with an average of 7.6 companies per month undergoing restructuring. Moreover, the pace of layoffs is accelerating: since late March, at least four additional pharmaceutical firms have unveiled layoff initiatives.
 
　　Meanwhile, as annual reports for the fiscal year have been gradually released, the global pharmaceutical industry continues to demonstrate solid growth, robust profitability, and a reasonable pipeline of new products. Given this favorable outlook, why are vibrant pharmaceutical companies resorting to layoffs as a means of self‑preservation?
 
　　Although each pharmaceutical company that has undertaken layoffs has its own rationale, it is important not to overlook the fact that over the past five years, the world has experienced numerous “black swan” events—events whose repercussions show no sign of abating. Looking back at the shifts in the global geopolitical landscape over the more than a century since World War I, the risks that have accumulated in recent years have left the industry unable to predict what lies ahead. Consequently, taking proactive measures—adjusting business strategies early on and even implementing workforce reductions—becomes entirely understandable.
 
　　However, some pharmaceutical companies have taken the opposite approach: far from “tightening their belts” or “shedding their burdens,” they have instead become avid investors in securities.
 
　　Divest non-core businesses
 
　　March and April mark the season when Chinese listed companies release their annual reports. Yunnan Baiyao’s 2021 annual report, which disclosed a securities‑investment loss of RMB 1.929 billion, drew significant attention within the industry. Against a backdrop of geopolitical uncertainty and the recurring challenges posed by the COVID‑19 pandemic, pharmaceutical firms have been tightening their belts and shedding burdens in an effort to safeguard themselves. Yet this company’s moves—and the outcomes—in the securities‑investment arena have left the industry thoroughly astonished. A review of its recent annual reports reveals that, beginning with a change in its controlling shareholder in 2018, the company accumulated RMB 7.2 billion in securities investments, a figure that has steadily risen thereafter. From 2019 through the first half of 2021, its holdings of trading‑available financial assets totaled RMB 8.821 billion, RMB 11.23 billion, and RMB 10.488 billion, respectively.
 
　　As institutional investors in the legal and publicly traded capital markets, both losses and gains are simply outcomes of investment and are entirely normal. However, from the perspective of timing for pharmaceutical‑industry investments, the period from 2019 through the next two to three years is characterized by significant uncertainty. Consequently, real‑economy firms should exercise extreme caution when investing in the securities market; even if they post profits rather than losses, such returns merely boost shareholders’ annual yields and do little to enhance the core capabilities of pharmaceutical companies.
 
　　At present, most pharmaceutical companies are divesting businesses that are only loosely related to their core operations—such as health supplements and food products. Some even separate their commercial divisions from their pharmaceutical businesses. Within the pharmaceutical sector itself, firms are further concentrating on their core areas, retaining their competitive strengths while shedding non‑core activities. The overarching goal is to safeguard the core business with limited resources, ensuring survival during challenging times and, once stabilized, to focus on niche segments to bolster competitive advantage. From this perspective, the actions—and outcomes—of a pharmaceutical company that has incurred nearly RMB 2 billion in stock‑market losses appear far from “professional.”
 
　　George Merck, the founder of the global pharmaceutical giant Merck, once said, “We should always remember that medicines are meant to save lives, not to generate profits—but profits will follow.” Herbert Boyer, the founder of Genentech, consistently emphasized that pharmaceutical companies must cultivate a science‑driven culture, placing patients at the center and orienting themselves around the development of effective medicines. The reason these companies have been able to break through in the fiercely competitive global pharmaceutical market and rise to the forefront is directly linked to the cultural principles they uphold, as well as to their ability to identify and embrace the developmental dynamics unique to their industry.
 
　　From a governance perspective, does compliance with national laws and regulations and with the company’s internal rules necessarily promote sound corporate development? Can it help mitigate corporate risks? And can it enhance competitive advantage? It goes without saying that the leaders of publicly listed companies must ask themselves these questions and provide clear answers. As corporate leaders, how can they fulfill their responsibilities to investors and employees?
 
　　Preserve cash flow to hedge risks.
 
　　In times of crisis and high uncertainty, risk mitigation is clearly more critical for pharmaceutical companies than maximizing short-term profits. If these companies are well-prepared in the following areas, they will be better positioned to manage and mitigate future risks and navigate periods of uncertainty.
 
　　First, minimize risks as much as possible. This primarily means avoiding diversification—particularly within the same industry—and exercising caution in external investments. Since it is currently difficult to predict where future risks will emerge or in which sectors they will arise, relying on conventional thinking could easily lead to traps. The experience of companies that survived the two world wars, the Great Depression of the 1930s, and the 2008 global financial crisis demonstrates that, during times of uncertainty, it is crucial to narrow one’s focus and concentrate on a limited set of areas, thereby reducing complexity. Lowering the level of risk is essential.
 
　　Second, maintain robust cash flow. Adequate liquidity ensures the company can survive even in the most challenging circumstances. As long as it remains viable, post-crisis opportunities will emerge—only then can those opportunities be seized.
 
　　Third, preserve, prepare for, and create opportunities in the aftermath of the crisis. Do everything possible to maintain core operations and retain key talent, ensuring that the spark of recovery remains alive for a future resurgence. In times of extraordinary challenge, directing limited resources toward scientific and technological research and new‑drug development will position your organization to leap to a higher level of competitiveness when the market rebounds. Even under extreme pressure, avoid any actions that could harm your brand, compromise quality, or undermine customer interests.