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The News Journal
SECTION: BUSINESS; Pg. 1C
LENGTH: 1495 words
HEADLINE: Offshoring gains momentum in pharmaceutical industry;
Trend increases opportunities in Del., but others fear more layoffs in store
RICHARD SINE
The News Journal
CB Research and Development, a small New Castle firm that helps design new drugs for major drug companies, laid off nearly half its staff last year due to competition from firms in China and India.
Just across the street, Marlex Pharmaceuticals, another small drug firm, plans to hire new scientists and bring new drugs to the public faster thanks to a partnership with an Indian firm.
And in Newark, Next Century Inc. is hiring as it helps drugmakers farm out their animal testing to Chinese labs.
Delaware's small life-science firms are racing to adapt to the rapid globalization of their industry.
"We're no longer competing with companies in New Jersey or Boston," said Susi Baylis-Powell, director of operations at CB Research. "Now we're competing with China and India."
Gone are the days when the United States was assumed to have unassailable advantages in developing drugs. Low-wage countries like China and India increasingly are home to skilled scientists, advanced equipment and pro-science governments. As a result, more pieces of the drug research, development and manufacturing puzzle are becoming viable in those countries.
CB performs laboratory testing and refinement of chemical compounds for large drug and biotech firms. Baylis-Powell said her clients have told her they can hire doctorate-level chemists overseas at one-quarter the cost of U.S. chemists. At a March trade show, she said, several foreign firms offered to help her test compounds at a lower cost.
"We could dramatically increase our profit margin if we outsourced overseas. I could lay everyone off and keep two chemists here," she said. "What good is that to the state of Delaware?"
Michael Bowman, president of the Delaware Technology Park, a Newark business incubator, said the more routine aspects of drug development chemistry are now moving offshore, just as routine computer programming was out sourced a few years ago.
Public anger over the high cost of drugs will accelerate the trend, he predicted. "If it can be done cheaper and with proper oversight overseas, then I think it's inevitable."
American drugmakers have shied away from sending drug development overseas because the U.S. Food and Drug Administration sets strict regulations on lab research for new drugs. They're also worried foreign firms will steal the recipes for their drugs.
But China-born chemist Dr. Li-Jie Fu is working to assuage these concerns. Fu left his job as a chemist in DuPont Co.'s genetic toxicology lab in 1994, shortly before DuPont eliminated the lab. That same year, he formed Next Century to advise drug companies on how to do business in China.
In 1999, Fu expanded Next Century by opening a genetic toxicology lab at the Delaware Technology Park. Last year, Next Century took over two labs, employing almost 50 people in China to do general toxicology testing there.
Chinese scientists are paid less than one-fifth that of their U.S.-based counterparts, Fu estimated. Fu can pass some of that savings to his U.S. customers. "If we can cut the cost and develop a drug faster," he said, "then it's a benefit to our customers."
Fu said his clients, who are drugmakers, also turn to Next Century to avoid having controversial animal labs in the United States.
Next Century's Chinese labs, however, follow U.S. regulations on humane treatment, he said. Fu also certifies that the labs meet standards for lab research set by the FDA and the Environmental Protection Agency. And he promises to closely guard his clients' trade secrets - a big concern in China, which has a reputation for stealing technology.
To ensure quality, Fu's Chinese labs are managed by American scientists. Hiring Americans cuts into Fu's profits, but Fu said he can still save his clients 50 percent over the cost of research in the United States.
Next Century plans to expand its labs in both China and Newark. "We hire for what we do here, and to support what we do there," said Brenda Tiffin, a technical writer laid off from DuPont last April and hired by Fu in August.
Fu is one of a handful of Delaware entrepreneurs acting as a bridge between China and U.S. drugmakers. Harry Lee, another former DuPont chemist, helps small biotech companies design manufacturing processes for new drugs at Wilmington PharmaTech, also at the Delaware Technology Park. He contracts out to a Chinese factory to produce ingredients.
Large drug firms have long manufactured drug ingredients at Chinese factories, Lee said. His company allows smaller companies to realize the cost savings, as well.
Ties to India
While China is emerging as an option for Western firms seeking low-cost drug research and manufacturing, India has become a drugmaking powerhouse through its experience producing generic versions of Western drugs.
New Castle-based Marlex has agreed to market one such generic drug for an Indian firm, said company president Sarav Patel. Marlex will apply for FDA approval of the drug on behalf of the Indian firm and will manufacture the drug here, Patel said. Marlex will hire local scientists to shepherd the drug through the regulatory process and to ensure the quality of the manufactured drugs, he said.
The drug would have cost three times as much to develop in the United States as it did in India, he said. The partnership with the Indian firm will speed the arrival of cheaper drugs to the U.S. market, he said. "It's a win-win for the American consumer, for the HMOs, for manufacturing here in the U.S."
Patel declined to name the Indian company or the new drug, saying the deal is still being finalized.
Patel, who was born in Philadelphia and raised in Bear, said doing business in India has been easy because most of the Indian researchers he's worked with were trained in America.
The pace of collaboration between the two countries is likely to increase, Patel said, as American companies gain confidence that their patents will be honored. India, which previously tolerated patent infringement, passed a new law this year prohibiting copying medicines patented after 1995.
Foreign countries gain ground
Meanwhile, drug firms such as Newark-based Incyte Corp. are increasingly conducting clinical trials overseas. With hundreds of drugs already in development, it's hard to find eligible patients for trials in the United States, said Dr. Rich Levy, vice president of drug development at Incyte.
"It's really not about trying to save money," Levy said. "It's more about being able to complete your trials in a reasonable time frame, so you can get your drugs to market."
Incyte conducts trials in Europe, but will consider Asia as it plans larger-scale trials of its new AIDS drug, Reverset.
Delaware's largest drugmaker, AstraZeneca, is already a highly globalized company. It is the U.S. headquarters of the London-based firm, and it signs new research collaborations with companies around the world almost every day, said spokeswoman Rachel Bloom-Baglin.
AstraZeneca has research labs in the United States, Britain, Sweden, Canada, France, Japan and India. Its Indian lab focuses on tuberculosis, a problem in the developing world.
In recent years, European drug firms have built labs near American universities, which boast top-flight research thanks to financing from the federal National Institutes of Health. Now, Asian governments have started to invest heavily in their own biotech industries through subsidies and tax breaks.
The extent of the subsidies is unclear. But some U.S. chemists believe that is giving Asian firms an unfair advantage.
James Kerschen, a former CB Research and Development chemist, said Chinese contractors are offering their services too cheaply. "If you do the math, you'll find these companies are operating at a 50 percent deficit. Who's ponying up the extra money? It's their governments."
To come to his conclusion, Kerschen analyzed information on the firms' Web sites, comparing their fees with information about equipment, staffing and common industry knowledge about Chinese salaries.
China's exchange rate - pegged well below the dollar's value - also puts U.S. firms at a disadvantage, Kerschen noted.
Kerschen, who left CB Research before its recent layoffs, is now head chemist at J-Star Research, a drug chemical synthesis firm in South Plainfield, N.J. He said J-Star has positioned itself to minimize the effect of low-cost competition. But it still has felt the effects of globalization.
"Would we have more business if there was no offshoring? Absolutely," he said.
Contact Richard Sine at 324-2878 or [email protected].