Posted by: Audrey Erbes | December 8, 2010

Thoughts on the Job Market and This Week’s Jobs Listing

You might be confused with the jobs news for the entire economy as well as the life science industry. Everyday the industry media tell us about more cutbacks, layoffs in the pharma industry, declines in VC interest in investing in health care start ups, etc. Yet the creation of new industry jobs also continues. I am getting more listings each week and recruiters tell me that job listings are up.
Does the number of new jobs cancel out the losses? We don’t have summary details for our U.S. industry at this time to know. The news features dramatic cutbacks and news of rightsizing companies but doesn’t connect with where those resources are being redirected. Are they just being plowed back into corporate treasuries for a rainy day or directed to share repurchase plans? Most likely the work continues somewhere by fewer or cheaper staff. And that usually means less qualified and/or experienced staff if outsourced overseas. So the real cost of less costly labor might not include cost of training as well as unseen costs in the equation.
What is going on? Is the employment base for our industry shrinking? We know that small start up companies generate growth in new jobs in our U.S. economy and our industry. They are having a more difficult time raising funds to develop their technologies and products with growing risk adversity among investors. Yet there are new sources through grants, special stimulus funds and corporate venture capital. And foreign governments like China are after new startups to come to China to fill their incubators as well as enhance their patent levels.
Several experts in making business contacts for American companies in China told me that those government grants from their government have a “cover” charge of about 40-60%–20% to the government official who qualifies your company for the grant, another 20% to a middleman and finally 20% to the finder. Imagine if you had to pay those costs when you received a SBIR grant!  So I say “Beware of strangers baring gifts”–there might be a catch like under-the-table payments which could land you in jail under the “corrupt practices act”.
Clearly, the major changes are in the big international pharma companies facing a huge patent cliff for their blockbuster drugs–wiping out billions of dollars of revenues quickly upon expiration of their patents. From my vantage point I see pharma pursuing some strategies–short and long-term–to overcome this crisis in revenue streams. Short term they are looking to develop quick sales from generic product sales of products off their shelf of approved products in the rapidly emerging drug markets. They are moving very quickly to establish a presence in Brazil, Russia, India and China (preferred to as BRIC countries) to compete in the low-priced generic drug markets that predominate in those countries.
We see the purchase of domestic companies in those countries by international giants to establish feet on the ground to compete  against cheap domestic generics with their Western branded generics. They hope someday to also participate in the sales of prescription drugs that are developed in the future when the purses of these emerging country citizens can afford them.
I wonder if the corporate business development staffs are doing opportunity assessments and valid do diligence on these foreign acquisitions. Sanofi just learned their do diligence on Shantha Biotech in India wasn’t effective in foreseeing some major problems. WHO canceled prequalification of the Shan5 vaccine this past summer due to manufacturing defects found in samples produced at a plant in India. “The suspension cost Sanofi $340 MIL USD in sales the company planned to make from a UNICEF contract. In addition, Sanofi needs to pay a capital gain tax amount of $154 MIL USD, and is currently awaiting trial by India’s AP High Court.” Source: Fierce Vaccines News, Nov 16, 2010. I’ll always remember that the FDA inspected the wrong plant in China–not the one actually producing the tainted material–due to a failure to understand the differences in company names in their English vs. Chinese characters.
Big Pharma management reports that patients in China highly distrust the efficacy and safety of their home grown generics and are willing to pay more for trusted brands from Western companies. The growing Chinese upper middle class with Western personal incomes will likely buy safer and more efficacious drugs but the wealth among broad cross section of population will take many years to grow–just witness the growth patterns in Japan, Taiwan, Singapore and South Korea. Plus I still wonder how setting up production of Western generics in China, for example, will offset the distrust of products made in highly “unregulated” Chinese pharmaceutical industry vs. those sourced from “highly regulated” markets.
Yes, the Chinese government has set aside $125 billion dollars for health care reform in period of 2009-2011 but that money isn’t likely to be used to pay for a Western company’s higher priced generics for the masses. In fact, China with a drug market value of $22 billion isn’t likely to use that stimulus money to promote higher priced products but rather build clinics to increase medical access in the rural areas which recently had no medical care (90% was in urban and 10% in rural areas). The focus for drug expenditures is traditional “Chinese medicine” and cheap generics. They are worried about uprising of masses in face of such poor health care. Note sales for high priced targeted molecular therapies including monoclonal antibodies and kinase inhibitors was about $500 million in China compared to $12 billion in the U.S. and $2.5 billion in Japan in 2009.
A second part of pharma strategy is pursuit of innovative new therapies from biotech companies with increased gusto and some are even considering giving up their inefficient inhouse discovery work altogether. They are looking to low-cost labor markets like India and China in which to access bench work through contracts or by building a research lab in country. So the jobs in the lab here aren’t lost jobs in the industry, they may end up in a biotech company financed by corporate funds or be  offshored to CROs or newly developed facilities in India and China. Labs as well as manufacturing plans are closing here but resources for them are being reallocated by international companies to low cost countries. Somehow this trend seems very similar to those in high tech. Didn’t IBM make major investments building presence and expertise in China and then experience the demand their staff go offshore to manage the facilities?
Management members tell me individually they don’t want to take away jobs from their fellow Americans but they just can’t compete without seeking low cost labor overseas. Now as the economies of these BRIC countries improve, which they will based on history, then salaries of workers will rise to parallel those in Western countries. Those experienced in overseas development tell me that with the high cost of supervision of inexperienced workers, their training, risk of losing intellectual property protection, corruption, high staff turnover as their trained workers move to local companies and making payments to Communist party members with palms open for bribes, there really isn’t much cost saving. The heads of emerging market departments for Merck and Pfizer claim the Chinese government has made promises to protect their IP. But this is a country without the rule of law so those promises don’t mean much to me. I’d be much more trusting to do deals in India where there is a long history of the rule of law and a practicing democracy.
If you risk losing control of your asset or quality in poorly regulated environment, how is that good business? And are the wages for qualified staff that cheap– a recent startup in China founded by Chinese expatriots who were schooled and trained in U.S. industry agree that innovative worker costs in China are currently at U.S. levels but just those for Alabama rather than the Bay Area.
Another short-term strategy is rightsizing of the organization to cut costs. Start up medical device  and biotech companies are already small so there’s not much room to downsize without destroying the organization needed to meet milestones. A major impact of this strategy is in pharma where the sales forces had become bloated. The industry was operating with over 60,000 reps in 1993 and companies announced they were cutting back and would be using new, smaller sales forces of “medical liaisons” in the face of  more closed physician doors to reps in managed care facilities.  A specialty product sold to specialists could be promoted by as few as 60 reps while a major blockbuster primary care drug required 3,000 for launch.  Instead of a shrinkage of the number of reps in the U.S., the total grew to well over 100,000 at the end of the decade as no company risked being short of reps to cover physicians.
It was a herd mentality that led to that overexpansion of sales staff. If everyone was hiring more reps then they needed to do the same–not unlike offshoring to save money. This earlier example showed that increasing reps was untenable, yet management did it anyway. Might this race to build marketing capability in the BRIC countries also be based on blind hope and faith where it’s not well placed? Is the needed due diligence at the standard needed possible in all these markets? Can you really make comparable judgements to those with far more information available  in Western countries?
Now with the loss of the big blockbuster primary care drugs and movement to highly specialized therapies, pharma business models have  once again decided to cut back sales force sizes but this time they are actually doing it. They have changed their focus to speciality drug sales a la Genentech’s model. The much cheaper Internet selling to physicians and patients available with advanced information technology is replacing face-to-face calls on primary care doctors. The new mantra is to build patient adherence for each prescription sold as a more efficient way to increase the bottom line.
Now you ask, where’s the list of this week’s jobs…
Jobs that Crossed My Desk through Dec. 8th can be downloaded by right clicking on the bolded title and opening in a new window.
Have a great holiday season,
Audrey 


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