INDIA: Medical Companies Joining Offshore Trend, Too

Publisher Name: 
The New York Times

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

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

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

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

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

"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

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

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

"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

AMP Section Name:Pharmaceuticals
  • 184 Labor