Who knows what will have happened by the time you read this, but as I write this column, it’s been one layoff announcement after another in the pharma business. A day does not seem to go by without another company coming out with some major reorganization along with thousands of job cuts. The only way I can be sure that things can’t go on at this pace is because there simply aren’t going to be enough jobs to carve off after a while.

Let’s take the reorganizations first: I surely can’t be the only person who hears about these things, hears the talk from upper management about how – finally! – the whole company is right-sized and sleekified, toned, tanned, and ready to go – and wonders what ever happened to the old org chart. You remember, the one from three or four years back, the one that was supposed to be the absolute best pharmaceutical corporate structure in the history of mankind. How long do they keep the press releases archived? Can we go back and read about how things were practically leaking puddles of excellence all over the floor, thanks to the visionary new plan? This is the same plan that’s just been scraped off the bottom of the CEO’s shoes, mind you.

Pfizer’s no stranger to this kind of thing, so I can use it as an example. Every time the company’s gone out and done one of those huge mergers, there’s been plenty of talk about what wonderful things the deal will do for the company and its pipeline, and how everything’s going so smoothly. Then, when the next deal takes place, we hear – again – about how it’s such a great thing for the pipeline (which, ah, needed some help) and how everything’s going to go so much better than, er, last time. Remember that perfect acquisition they made a while back? Well, they’ve learned from that experience, and they’re not going to let it happen again.

Earlier this year, the company announced that it was cutting back its clinical development efforts. And they certainly were ruthless about it – by the time the sawdust stopped flying, they were all the way back to 500 or so compounds. I don’t think that an exact number was ever given; they’re the only drug company in the world whose clinical candidate total is apparently large enough to have error bars on it. If we’re ever going to know if “volume, volume, volume!” is the answer to the drug industry’s problems, Pfizer is going to be the company to tell us.

But I don’t think it is. What’s worrying me these days are the figures that make it look like big pharma’s in-house R&D is actually providing a negative return on investment, after you take all the costs (and opportunity costs) into account. I really, really hope that that isn’t true, but I don’t have the figures to refute it – if they even exist. Wall Street is talking up those companies that cut back on their own research in order to focus on in-licensing and option-based deals. That seems to have a better return, since some of the compounds that implode do so before the dealmaking stage is reached. Basically, some of the risks of drug discovery get moved from the big companies to the smaller ones (and their investors).

Now, when I wrote about this on my own blog, comments poured in from every direction. One common theme was that these were perhaps the same financial geniuses that brought us the recent economic hurricane, so why exactly was anyone listening to them? But that argument doesn’t hold up. The stock and industry analysts are a different bunch entirely than the mortgage-bond people, and they’re also very much different from the ones who thought they had the risks of the real estate market figured out.

Another counterargument was that inlicensed drugs blow up, too, and that there have been some pretty large and unprofitable deals made over the last few years. But while this is certainly true, the success rate still manages to look higher for external compounds. And as for the boneheaded deals, well . . . some of them didn’t look that way at the time. The ones that did – and we can all name a few – just go to show that not everyone is executing this idea very well. In fact, a large company that’s not careful enough with its inlicensing could very well burn through even more cash that way than if it had stayed at home. And who knows, if this tend continues, we might just see that happening! That’ll bring those two ROI figures back in line, and make internal research look more reasonable.

But that’s not how I’d like to see that happen. Getting R&D to look good only by comparison with something worse doesn’t sound like a winning strategy. If things get to that point, some companies may not even be able to go back to their own efforts even if they wanted to. And that brings up the recent job cuts, because one of the many worries about these is that companies are losing too much of their internal expertise. The reason for the cutbacks should be clear: it’s that ROI argument. If it really is more profitable to bring in your compounds from somewhere else – or if you think it is, which (given the time in office of many top executives) might as well be the same thing – then it makes sense to spend less on your own efforts. You’ll get rid of some of them outright, and find ways to cut costs in what remains, like sending the chemistry to India and China.

The big question is whether that’s going to work. While costs per FTE are certainly lower for outsourced work, they’re not as low as they were a few years ago. And there’s a tricky balance to be maintained if you’re going to do substantial amounts of your research across more than one site. I’ve seen projects that have really been helped by judicious outsourcing, and I’ve seen others sink into the swamp when the cycle time didn’t work out. My guess, which may be counterintuitive, is that the companies that are transferring whole projects to lower-cost research sites are going to have a better time of it than the ones that are trying to run them across two continents. I rather hope that someone proves me wrong about that one, since it just gives even more reasons to cut jobs here, but it’s going to be a while before we find out.

Where (and how) all this will end, I truly have no idea. This doesn’t look like a cyclical downturn in the fortunes of pharma research, unfortunately. It’s more of a secular change, and I don’t know where it’s going. The worst case would be if companies can’t find a way to make the ferocious costs of modern R&D pay off at all – or if society decides that it’s not getting as much as it wants for the money involved. I have to think that since people are still getting sick, and still want to get well, there are huge opportunities still out there. But how to seize them? It’s time for something new, but what might that be?

Derek B. Lowe has been employed since 1989 in pharmaceutical drug discovery in several therapeutic areas. He blogs at In the Pipeline.