Yet another sector embraces outsourcing to Asia: Life sciences

By Andrew Pollack The New York Times
Friday, February 25, 2005

Bala 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 Manian is now rediscovering his native country. His newest medical venture, ReaMetrix, which makes test kits for pharmaceutical research, is still based in California. 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 provides telling evidence of a trend. The 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 sectors.

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. It is, moreover, viewed as an economic growth engine and a source of new jobs, particularly as growth slows in other sectors.

"What I see in India is the same kind of opportunity I saw in the valley in 1979," Manian said, referring to Silicon Valley. 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, U.S. industry executives 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 does drug screening in Asia for U.S. and European pharmaceutical clients.

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 U.S. Commerce Department, fewer than 6 percent of American companies with biotechnology operations employed contract workers abroad in 2002, but industry experts say that percentage has increased in the past 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 makes $20,000 to $40,000 a year compared 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, Arizona, 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.

Fueling the outsourcing trend are Indian and Chinese scientists who obtained graduate degrees and work experience in the United States and Europe and who 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 helping to start Pharmacopeia, a New Jersey pharmaceutical company.

In 2001, Li moved to Shanghai to start WuXi, which does chemistry work for American and European companies. The company has grown rapidly to 570 employees and had $21.5 million in revenue last year, Li said.

Roche, the Swiss pharmaceutical company, recently opened a research center in Shanghai to make use of the knowledge base 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 whose scope is restricted by U.S. law.

By a broad definition of the life sciences - including medical devices, pharmaceuticals and certain parts of agriculture and chemicals - employment in the United States is 885,000, according to a study by the Battelle Memorial Institute. Some 225,000 jobs, mainly in computers and back-office work, moved offshore in 2004 alone, according to Forrester Research.

There are some factors that suggest life-science jobs will be slower to move offshore than those in information technology. For one thing, drug companies face less pressure to cut costs because they have relatively high profit margins.

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.

Moving research and development far from customers in the United States can also pose problems. Aviva Biosciences of San Diego, for example, which makes chips for biological research, 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.

These barriers to foreign outsourcing, say those in the business, are not likely to slow the trend.

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

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