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INDIA: Medical Companies Joining Offshore Trend, Too

by Andrew PollackThe New York Times
February 24th, 2005



Bala S. Manian rarely looked back when he left India to attend graduate school in the United States. Since 1979, he has started one medical technology company after another in Silicon Valley.

But Dr. Manian is now rediscovering his native country. His newest medical venture, ReaMetrix, which makes test kits for pharmaceutical research, is still based in Silicon Valley. But 20 of its 28 employees are in India, where costs for everything from labor to rent are lower.

The exporting of jobs by ReaMetrix is telling evidence that the relentless shifting of employment to countries like India and China that has occurred in manufacturing, back-office work and computer programming is now spreading to a crown jewel of corporate America: the medical and drug industries.

It could be a worrisome sign. 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.

"What I see in India is the same kind of opportunity I saw in the Valley in 1979," said Dr. Manian. In the United States, he said, "a million dollars doesn't go more than three months." In India, by contrast, "I can run a group of 20 people for a whole year for half a million dollars."

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.

"First toys, clothes, those kind of things, then electronics and computers and now, finally, pharmaceuticals and biotech," said Jimmy Wei, a venture capitalist in San Francisco who helped start Bridge Pharmaceuticals, a company that is doing drug screening in Asia for American pharmaceutical companies.

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.

"It's a trend that's becoming more pronounced as people's budgets get tight," said Riccardo Pigliucci, chief executive of Discovery Partners International, a San Diego company that does chemistry work for drug companies. He said a chemist in India made $20,000 to $40,000 a year, in contrast to $80,000 to $100,000 in the United States.

Discovery Partners started a small operation in India to offer lower-cost services. In conjunction with that move it consolidated its American operations in San Diego and South San Francisco, closing a facility in Tucson and laying off 28 employees, according to its regulatory filings.

Clinical trials of new drugs, for instance, are already moving to countries in Asia, Eastern Europe and Latin America, because the costs of conducting the trials are lower and human subjects can be recruited more easily.

Drug manufacturing is another area that can move. India already has a thriving generic drug manufacturing sector and is moving into biotechnology. One biotechnology company, Biocon, went public in India last year. Its founder and chief executive, Kiran Mazumdar-Shaw, has been described in the news media as the richest woman in India.

With revenues of more than $100 million last year, Biocon is a leading producer of generic cholesterol-lowering drugs called statins. It has designs to become a major producer of insulin and monoclonal antibodies. It also has divisions that do contract research and run clinical trials for large American and European pharmaceutical companies.

Fueling the outsourcing trend are Indian and Chinese scientists who obtained graduate degrees and work experience in the United States and Europe and are now returning to their native countries.

Ge Li, the founder of WuXi Pharmatech in Shanghai, for example, spent 12 years in the United States, earning a doctorate in organic chemistry at Columbia University and then co-founding Pharmacopeia, a New Jersey drug company.

In 2001, Dr. Li moved to Shanghai to start WuXi, which does chemistry work for American and European companies. The company has grown to 570 employees and had revenues of $21.5 million last year, Dr. Li said. "Essentially all of the big pharmas are our customers," he said.

PTC Therapeutics, a biotech company in South Plainfield, N.J., hires WuXi when extra help is needed for a short time.

"We can turn them on and off as needed," said John Babiak, senior vice president for discovery technologies at PTC. But he said PTC decides which compounds to make to test as potential drugs, leaving WuXi to make them. "We're just farming out the bench work," he said.

In that sense, what is going offshore might be called "back laboratory" work, somewhat equivalent to the back-office information technology functions that have moved in the past. But there are signs that the biotech migration will go beyond low-level work.

Roche, the big Swiss drug company, just opened a research center in Shanghai to make use of Chinese scientists returning from abroad. "U.S. academia had been run by Chinese post-docs for the last 10 years, if not 15," said Jonathan Knowles, head of global research for Roche.

China and India are starting to invest heavily in developing biotechnology expertise. Meanwhile, Singapore has created a cluster of research centers and has attracted some top scientists.

Another potential advantage for some Asian countries is their more permissive stance on embryonic stem cell research, a promising new field that is restricted in the United States.

A group of British stem cell specialists that visited China, Singapore and South Korea said scientists in those countries were as talented as in Britain but better equipped and funded. "The challenge to Western pre-eminence in stem cell science from China, Singapore and South Korea is real," it concluded in a report.

However, the life sciences industry, even without outsourcing, is not so big that it can make up for jobs lost in other sectors.

By a broad definition of the industry, including medical devices, pharmaceuticals and certain parts of agriculture and chemicals, employment reaches 885,000, according to a study by Battelle Memorial Institute for the Biotechnology Industry Organization. Some 225,000 jobs, mainly in computers and back-office work, moved offshore in 2004 alone, according to an estimate by Forrester Research.

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.

Novartis, the Swiss pharmaceutical giant, for example, shifted its research headquarters from its home country to Cambridge, Mass., in large measure to be near Harvard, M.I.T. and the numerous biotechnology companies there.

"The lead the United States has built in biomedical sciences is so great that I don't think this will be lost anytime soon," said Paul Herrling, head of research for Novartis.

Moving research and development far from customers in the United States can also pose problems. Aviva Biosciences of San Diego, which makes chips for biological research, for example, was started by Chinese scientists with the idea that much of the technology would be developed in China.

But now Aviva does most of its work in San Diego because the scientists in China could not grasp the needs of American researchers, said Jia Xu, vice president for research and development.

"In terms of the market we're trying to address you really need people who are from the industry," he said. "And that's something you cannot find in China."

These barriers to foreign outsourcing, say those in the business, are not likely to slow the trend. Besides, they argue, cost savings from outsourcing can free up resources for more drug development in the United States.

Dr. Manian said ReaMetrix, for instance, can prepare material in advance so scientists in the United States can do experiments faster.

"I am not interested in replacing jobs here," he said. "I am interested in taking those opportunities that are compelling, and yet are not economical to do here and do them in India."

An expert in optics, Dr. Manian first started Digital Optics, which made equipment to transfer digital medical images, like CT scans, onto film. (That same technology is used to put computer-generated special effects onto movie film, earning Dr. Manian an Academy Award certificate for technical achievement.)

Among the other companies he co-founded were Molecular Dynamics, which developed a DNA-sequencing machine, Surromed, a drug and diagnostics company, and Quantum Dot, which has a system for detecting biological molecules.

These days, he thinks India holds big advantages, including a young population.

"The exodus of jobs in life sciences will take place," he said. "There's no avoiding it. There's no way that you can sustain the inefficient research and development that exists in the U.S."




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