Thursday, February 24, 2005
Outsourcing biotech/pharma
Andrew Pollack, writing for the New York Times, covers a trend in the biotech/pharma business that I believe will become pretty significant in the next couple of years -- offshoring research and development to India. As with IT, you can hire biotech and pharma experts in India at a fraction of what they cost in the U.S. Etc. Etc. I personally know a few people from Bangalore setting up offices in the U.S. to facilitate this offshoring of research, and they seem very optimistic about the prospects.
The life sciences industry, with its largely white-collar work force and its heavy reliance on scientific innovation, was long thought to be less vulnerable to the outsourcing trend. The industry, moreover, is viewed as an economic growth engine and the source of new jobs, particularly as growth slows in other sectors like information technology. While life sciences jobs may be less vulnerable to outsourcing than jobs in information technology, industry officials say many companies are looking at that option as pressures mount to control drug prices and cut development costs.
The outsourcing of some life sciences jobs could be seen as evidence that American biotechnology companies, like their counterparts in other industries, are doing nothing more than building global connections that help make them more competitive around the world. So far, the job movement has been small. According to the most recent data compiled by the Commerce Department, less than 6 percent of American companies with biotechnology operations employed contract workers abroad in 2002, but industry specialists say that percentage has increased in the last three years.
There are some factors that suggest life science jobs will be slower to migrate offshore than those in information technology. For one thing, drug companies face less pressure to cut costs than, say, computer disk drive manufacturers because pharmaceuticals have relatively high profit margins. "We're not trying to eke out another percent of operating margin," said Kevin Sharer, chief executive of Amgen, the largest biotech company, which is based outside Los Angeles. Also, life sciences companies often prefer to be near the best university research, which, for now, is largely in the United States because of ample funding from the National Institutes of Health.
The life sciences industry, with its largely white-collar work force and its heavy reliance on scientific innovation, was long thought to be less vulnerable to the outsourcing trend. The industry, moreover, is viewed as an economic growth engine and the source of new jobs, particularly as growth slows in other sectors like information technology. While life sciences jobs may be less vulnerable to outsourcing than jobs in information technology, industry officials say many companies are looking at that option as pressures mount to control drug prices and cut development costs.
The outsourcing of some life sciences jobs could be seen as evidence that American biotechnology companies, like their counterparts in other industries, are doing nothing more than building global connections that help make them more competitive around the world. So far, the job movement has been small. According to the most recent data compiled by the Commerce Department, less than 6 percent of American companies with biotechnology operations employed contract workers abroad in 2002, but industry specialists say that percentage has increased in the last three years.
There are some factors that suggest life science jobs will be slower to migrate offshore than those in information technology. For one thing, drug companies face less pressure to cut costs than, say, computer disk drive manufacturers because pharmaceuticals have relatively high profit margins. "We're not trying to eke out another percent of operating margin," said Kevin Sharer, chief executive of Amgen, the largest biotech company, which is based outside Los Angeles. Also, life sciences companies often prefer to be near the best university research, which, for now, is largely in the United States because of ample funding from the National Institutes of Health.
