Posted by: Audrey Erbes | February 27, 2012

How Might “Insourcing” Trend Impact Life Science Industry plus Upcoming Events

I’ve been thinking more about the threat of further loss of industry jobs to other clusters and BRIC countries. I wonder which companies in our industry would be model “citizens” these days in “insourcing” jobs back to USA as other sector companies recognize this as a good business practice in the changing global environment.

Some life science corporations indicate repatriation of their overseas cash at a low tax rate of about 8% would encourage them to consider creating more jobs here. But unfortunately there’s so guarantee that they’d use repatriated money any differently than Big Pharma did during the Bush Administration when Congress gave them reduced tax rate vs. the 35% rate they would normally pay. They failed to create jobs as intended with that last low tax rate. Instead they spent money on stock buybacks and increased compensation for top management.

It appears the morally right thing to do just isn’t going to happen among corporations as long as there is no enforcement. They generally don’t teach company responsibility and ethics in business schools—the emphasis is on making the biggest profit for the stockholders and top management. Last year’s Hollywood film The Company Men portrayed well the incentives and values that drive modern corporations. I heard a statement by top U.S. government official on NPR about why the banking industry’s management involved in creating the 2008 economic crisis isn’t going to jail might be true for our industry’s leadership as well. “What they did was morally wrong, but it wasn’t illegal.”

But there is some good news in that some major companies are starting to bring back manufacturing jobs to the U.S. And they aren’t all U.S. companies. At least one pharmaceutical firm that established an R&D center in China learned that corruption and costs of importing equipment and reagents along with increasing wages to recruit qualified staff there erased the initial incentives. The difficulty of dealing with city, regional and state government officials who practice corruption without the protection of the rule of law can be a nightmare for an outsider.

Companies will still invest in commercialization in the BRIC countries to take advantage of the growth in population with higher incomes appearing in these places, but the risk of losing IP and doing business in a country without rule of law is becoming a serious concern to innovators. They also don’t want to risk going to jail under the Corrupt Practices Act as result of becoming involved in bribery which is the norm in many BRIC countries. Unlike Europe taking one’s family to the BRIC countries might not be acceptable. I recently spoke with different returnees from Shanghai who had lived there for two years who told me they longed to see blue skies and breathe clean air without mercury and lead contaminants. They also missed their families whom they left in the U.S.

One can hope that management is doing more than a cursory review of the factors involved in moving a start up company to emerging markets before making a decision. Promises of extremely low costs to carry out life science as well as potential funding there is proving illusive. For example, there are legal restrictions as to those eligible for Chinese government funds—these funds can be received but not without major payoffs going to the finder and the government official who falsifies the documents to provide the grant.

There are also lots of stories about extremely wealthy Chinese who want to invest their funds but, it needs to be remembered, they expect a high return quickly which is not possible with our high risk industry’s development cycle . Experienced entrepreneurs know that only “smart money” works well in our industry. Getting in bed with those who lack knowledge of the business cycle can make life hell and prove disastrous for a company.

Let’s turn to this coming week’s meetings. I’ve provided the highlights below. The full list of events through April with details can be downloaded by right clicking on Audrey’s Events.

 

  • BioCentury TV Today, See the Webcast Sunday, Feb. 26, 2012 http://www.biocenturytv.com, Continuously available starting at 9:00 a.m. EDT; Topic: “Healthcare Lightning Rod;” Speaker: Dr. Donald Berwick, former head of Medicare
  • Bio2Device Group, Tuesday Morning, Feb. 28, 2012; Topic: “Developing Innovative Biotherapeutics driven by Unmet Medical Needs;” Speaker: Xiaodong Yang, M.D., President, CEO and Member of Board, Apexigen
  • QB3 Quadrant Speaker Series, Tuesday Noon, Feb. 28, 2012; Topic: “The Future of Diagnostics—Detecting, Preventing, and Predicting Disease;” Speaker: Eric Whitters, Global Head of Research and Development,Novartis Diagnostics
  • HBA San Francisco 2012 Mentoring Program; Application by Feb. 28th
  • Golden Gate Polymer Forum, Tuesday Evening, Feb. 28, 2012; Topic: “Fast-Scan Differential Scanning Calorimetry – Practical Applications in Research & Quality Labs in Polymer Industry;” Speaker: Jun Wang, Application Scientist, Thermal/Elemental Analysis, PerkinElmer
  • Medtech Frontiers, Thursday Evening, March 1, 2012; Topic: “The Fantastic Voyage;” Speaker: Fabien Beckers, CEO of Morpheus Medical

Audrey

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