Even knowledge based sectors contract

The UK's second-largest drugs firm AstraZeneca is to close two R&D centres with the loss of 1,200 jobs.

The move is part of a wider global reorganisation - both within AZ and across the pharmaceutical sector as a whole - which will see AstraZeneca lose something like 8,000 jobs in total over the next five years. It’s an urgent task for a firm that has been particularly badly hit by one of the industry’s worst bugbears, the so-called ‘patent-cliff’ – the sudden and enormous drop in revenues that occurs when the patent on a blockbuster drug expires.

But the real problem is that its pipeline of replacement new treatments is running dry. It’s this fundamental lack of R’n’D productivity that AZ boss David Brennan is trying to address. Bosses and shareholders have woken up to the fact that partnerships and licensing deals allow Big Pharma to offload the risk of finding the next big thing to small, highly focussed biotech groups, while still sharing a substantial chunk of the upside of any molecular golden bullets which do come along. Like the deal which AZ signed recently with Rigel to develop an arthritis treatment, at much lower cost that had it done so alone.

Similar moves by GSK have resulted in 380 UK R’n’D job losses recently, with more likely to follow.

On the operational level, this is all perfectly sound commercial decision making. But there is a wider point in play here - knowledge industries like the pharma and biotech sectors rely on countries having a large and vibrant skills base from which they can pick their talent. If the size of private sector R and D keeps shrinking, there’s a risk that critical mass will be lost and that a trickle of dis-investment then becomes a flood. Especially given that the public sector - in the shape of universities and higher education institutes – is likely to be too cash-strapped to make up the difference over the next few years.