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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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« Alzheimer's: Extracting Data From Failed Trials | Main | Looking Back at the Genome »

June 11, 2010

Eli Lilly, Meet Eli Lilly. Topic: Outsourcing!

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Posted by Derek

Eli Lilly has been very aggressive about outsourcing their R&D work. A look at their headlines over the last few years confirms that impression. "Lilly's Labs Go Global" (2006). "Eli Lilly to Outsource Half of Research by 2010"http://www.fiercebiotech.com/story/eli-lilly-outsource-half-research-2010/2007-12-17 (2007). "Covance Inks 1.6B Dollar Deal With Lilly" (2008). Here's an overview of the whole process.

Comes now a highly placed pharma executive warning about America's competitive edge in the life sciences:

The American pharmaceutical and life sciences industry is in danger of losing its edge in innovation, said John Lechleiter, chairman and CEO of Eli Lilly & Co. today at the Detroit Economic Club.

Lechleiter blamed the loss on tax and immigration policies over the last 10 years that have reduced research and investment funding and driven away foreign-born, U.S.-trained scientists.

Now, as regular readers know, I'm not an opponent of outsourcing. But you can't have it both ways, sending as much research and development as you can to India, China, and what have you, and then complaining about the US losing its R&D position. Can you?

Comments (50) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. Evorich on June 11, 2010 6:23 AM writes...

You're right - you can't have it both ways.

It seems that the key being in big pharma upper management is to have the skill of convincing everyone, including yourself, that whatever goes wrong, it was somebody elses fault.

Permalink to Comment

2. Daniel Haszard on June 11, 2010 6:36 AM writes...



Eli Lilly promotes sales of their #1 drug (Zyprexa $4.8 billion per year) that can *cause* diabetes and then turns around and makes billions selling more drugs to treat the diabetes.
Lilly's cash cow Zyprexa has been over-prescribed and linked to a 10-times greater risk of causing type 2 diabetes and increased risk of heart attack.
At 5 to ten times the cost of the old standby thorazine,recent comparative studies show the diabetes inducing zyprexa class of drugs are only borderline better in controlling symptoms.
Only 9 percent of adult Americans think the pharmaceutical industry can be trusted right around the same rating as big tobacco.
No Wonder!
Daniel Haszard Zyprexa whistle-blower

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3. silicon scientist on June 11, 2010 7:02 AM writes...

What you need is a translation: "Please continue oversupplying Ph.D.s in the U.S.; the outsourcing doesn't seem to be helping as much as the consultants said it would. And since we can't get Americans into these jobs anymore after our failed attempt to make research a commodity, it would be nice if we got some more visas. Oh, and getting the government to kick in more for our R&D...directly or through tax cuts...would be swell."

It's the same in the semiconductor industry.

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4. alig on June 11, 2010 7:13 AM writes...

Thanks Silicon. That translation seems spot on.

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5. RandChemist on June 11, 2010 7:31 AM writes...

When will leaders realize that they will be called out on talking out of both sides of their mouths?

Or pick another place to talk out of...

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6. processchemist on June 11, 2010 7:41 AM writes...

Ehi, wait a minute... the US market should be characterized by quite an high level of freshly and not so freshly unemployed pharma scientists... so maybe all the opposers of the H1B visas are not the usual bunch of rednecks, racists, and so on...

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7. John on June 11, 2010 8:30 AM writes...

The "not enough H1B visas" card is a pretty odd one to pull out given the current unemployment rate among US scientists.

Daniel, this is the "Endlessly analyze nerdy scientific trivia and bitch about high unemployment among scientists" blog. Please restrict your posts here to witty observations about the finer points of stereochemical nomenclature, entertaining stories about chemical reagents you have used that incorporate rare elements in unusual oxidation states, lengthy critiques of bizarre, non-mainstream scientific theories, and pro- or anti-H1b rants. The "Diatribes and half-truths about the evils of modern pharmaceuticals" blog is over at Pharmalot. Thanks!

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8. anon the II on June 11, 2010 8:32 AM writes...

I saw this article linked to in a lot places.

As an early victim of Lilly's push to replace internal scientists with external scientists because they are cheaper, I was appalled at the two-faced level of this talk. A lot of people saw Dr. Lechleiter as a good guy and a straight shooter as he rose through the ranks at Lilly. This talk was a facetious slap in the face to anyone who expects integrity at the top.

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9. Kent G. Budge on June 11, 2010 8:59 AM writes...

John,

That loud, whining sound you hear is an axe being vigorously ground.

Zyprexa is used to treat schizophrenia. It has a tendency to cause weight gain as well, so it is unsurprising that its use is associated with Type 2 diabetes. Tradeoff? I would never swap my Type 2 diabetes for schizophrenia.

Zyprexa may not control schizophrenia much better than thorazine, but it seems to have fewer and less unpleasant side effects. Thorazine has a nasty tendency towards liver toxicity, and a host of other side effects that lower quality of life.

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10. JasonP on June 11, 2010 9:03 AM writes...

We really live in a sad era of geopolitically and economically foolish mistakes made by America in the name of a new and mostly unproven 'free trade' economic world model where only America is playing the game by the rules and thus loosing handedly.

Permalink to Comment

11. anchor on June 11, 2010 9:15 AM writes...

"The American pharmaceutical and life sciences industry is in danger of losing its edge in innovation", said John Lechleiter. Hmm...I wonder whether he would have said the same (outsourcing etc.), if he was still a practicing organic chemist (like bunch of us). Now that he is CEO he has to repeat that mantra (outsource), like others.

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12. Frank A. Adrian on June 11, 2010 9:40 AM writes...

Of course Dr. Lechleiter and Lilly can have it both ways. The chemistry community is too cowed and ground down to do something like boycott Lilly; the industry press (like most business press) would not question this because they need Lilly's ad bucks; the mainstream press, if they noticed at all, wouldn't dig deep enough to question; and Congress, if they're listening, won't care as long as their PhRMA lobbying bucks come in. So what's the downside of saying something like this?

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13. CMCguy on June 11, 2010 10:01 AM writes...

US Big Pharma in general losing edge in innovation is not as much due to tax and immigration policies but the lack of significant scientific leadership with in organizations. I saw Lechleiters appointment as a potential positive sign of change against that tide but obviously he learned to play to his audience (Economic club) with not admitting directly greater focus on quick profits rather than sustained investing in the future.

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14. sigma147 on June 11, 2010 10:10 AM writes...

This riff seems to be the latest CEO theme - I was at a talk by Ge Li of WuXi Apptec and listened to him expound on why the US pharma industry is outsourcing to China. According to him, China has the advantage of graduating 300,000 chemists a year. His perscription to improve the US industry? Why, graduate more chemists, of course! This said to an audience that, by my rough estimate, was probably made up of 15-20% unemployed chemists (lots of people at that meeting to network).

Apparently, the take home message is that chemists make too much in the US, and that China keeps wages low through an oversubscribed labor market. Thus, to compete the US must raise unemployment rates even higher so that chemists will be glad of whatever low paying, crappy job they have and can be worked as hard as those poor schlubs overseas, with 80 hour weeks for all.

In (somewhat) related news: http://money.cnn.com/2010/06/10/news/international/china_labor_strikes.fortune/index.htm

Permalink to Comment

15. Beentheredonethat on June 11, 2010 11:05 AM writes...

JasonP,
I think you will also find that the UK also plays by the rules and the pharma industry in the UK has been royally screwed in recent years.

Permalink to Comment

16. CMCguy on June 11, 2010 11:54 AM writes...

Here is a link to source of this

http://www.crainsdetroit.com/article/20100609/FREE/100609837

Based on fuller reading will modulate my earlier comment as in context does seems Lechleiter is talking about investing in R&D with implication that would be done in US if tax incentives were greater but also need higher educated staff (including Foreign Immigrants). Still smacks a bit of double talk because there is a point that tax incentives can not counter balance cheap labor overseas so unless weighed toward "quality" vs "quantity" of researchers then bottom-liners only look at the "savings from outsourcing". I likewise don't disagree that relatively US lags in Science and Math education, nor that non-US Scientist are a valuable resource, but am not sold on common suggestion that there is a shortage of capable people available (particularly with the decimation of Pharma R&D in recent years, again IMO from lack of leadership).

Permalink to Comment

17. Skeptic on June 11, 2010 12:53 PM writes...

Gee, the med chems still can't grasp the fact that the CEO's have no say in the matter. Its like they've never read a book on economics or banking in their life.
Remember the motto: "You don't deserve a job, you just deserve to be strip-mined through property taxes"

Permalink to Comment

18. Shanghaied on June 11, 2010 1:14 PM writes...

If I haven't posted this quote before here.

"Where is the benefit to Americans of offshoring? The answer is that the benefit is confined to a few highly paid executives who receive multi-million dollar bonuses for increasing profits by offshoring jobs. The rest of the big money went to Wall Street crooks who sold trusting people subprime derivatives."

Permalink to Comment

19. Skeptic on June 11, 2010 3:52 PM writes...

Trying to do trade with densely populated nations is an exercise in futility. They don't want your stuff, they are too densely populated to gainfully employ their own workforce. Their excess capacity is exported to the USA thus killing off our own manufacturing base. If the existing CEO's didn't outsource, they would be replaced by ones who did. Their ridiculous compensation is a deliberate distraction away from the real source of bad trade policy. But hey, the med chems are smart guys, right?

Permalink to Comment

20. anonymous on June 11, 2010 5:48 PM writes...

So what speech does he give when he speaks in Shanghai?

Permalink to Comment

21. John on June 11, 2010 5:59 PM writes...

Skeptic, there is really nothing very impressive about going on a blog and insulting people from behind the protection of a pseudonym. Be nice, or your parents might take away your internet privileges :>).

Permalink to Comment

22. Diabetes on June 11, 2010 6:01 PM writes...

Hi, I'm a diabetic with type 2, blogging about diabetes also. I'm exercising everyday to do the best of the situation.

Permalink to Comment

23. MedChem on June 11, 2010 6:16 PM writes...

19.

Population density is not the root problem it's the degree to which a country is developed. Just look at Japan where population density is several times higher than China. Everyone seems to be gainfully employed there.

Once China is developed, you'll have Japan times five. But the kicker is it might take 100 years or never.

Permalink to Comment

24. Anonymous on June 11, 2010 9:36 PM writes...

People are very fixated on chemist'. you know there are other types of scientist that work in pharma as well. Maybe he was referring to a lack of properly trained those types of scientist. Chemist in pharma seem to think that the world revolves only around them.

Permalink to Comment

25. Biotech on June 11, 2010 10:01 PM writes...

Most Chemist here doesn't like outsourcing, so what can do about it? Complain about China and India?

I went Novo Nordisk Beijing R&D site in 1998, at that moment, they had only 10 people. Again I visited them in 2008, they moved into an new building and had 70 people. The site leader tole me the annual saving is 30-40% by comparing to the Denmark site, that is real saving and real R&D there!

Once again, Time will tell you everything, Lilly is doing the right thing.

Permalink to Comment

26. processchemist on June 12, 2010 2:39 AM writes...

@Biotech

Time said that mechanization of innovation (combichem) has been fruitless. If you have a look at the R&D cooperation agreements of Lilly with NP and Jubilant, you don't see many results.
I mean, Jubilant has a strong background in process development (I have no experience with NP) but what's their curriculum about medchem? Libraries.
There are some indian biotechs with stronger background in drug development and R&D (Cadila, Glenmark, GVK Bio).
Chinese R&D operation are mostly failing the expectatives ( or the hype) of their promoters. Major results were expected from the GSK Shangai CEDD for last April. I didn't hear anything.

Immediate savings are real for sure, but the most incongruent attitude of some "suits" is that they ask short times to western R&D, and let an eternity to pass before valuating the productivity of asian researchers.

Permalink to Comment

27. JOY on June 12, 2010 11:08 AM writes...

Cost is not only about the price you pay for workers but the value of workers deliver, and the value is what a CEO should really look for. Creative minds, innovation and productivity drive value up, and you don't have to look outside to get them.

Permalink to Comment

28. Rich Rostrom on June 13, 2010 3:12 PM writes...

I don't see the hypocrisy.

Lechleiter is complaining about tax and immigration policies which make it profitable for pharms such as Lilly to offshore. (Or as he might say, impossible to survive without offshoring.)

These policies are set by the government, which is an authority above his.

Now if Lechleiter has been acting as a cheerleader for offshoring, claiming benefits that go far beyond offsetting the bad government policies - then a claim of hypocrisy is more cogent.

Permalink to Comment

29. Tok on June 13, 2010 5:54 PM writes...

Lower wages are only a small slice of the outsourcing savings. It's lower environmental and safety regulations that lead to a big part of the savings.

Permalink to Comment

30. MIMD on June 13, 2010 7:05 PM writes...

Lechleiter blamed the loss on tax and immigration policies over the last 10 years that have reduced research and investment funding and driven away foreign-born, U.S.-trained scientists.

He left out pharma executive stupidity.

Most of the ones I met in my regrettable years in pharma had far less critical thinking and problem solving skills than the average decent community physician.

Permalink to Comment

31. Anonymous on June 14, 2010 2:38 AM writes...

#29

Precisely. I've banged on in many places about this but very few get the point. Lower salaries are only a small part of the cost saving for outsourcing - the lower environmental and safety standards are a critical part of the equation.

So I can't help feeling that this does amount to unfair trade, just not for the traditional reasons.

Permalink to Comment

32. Jose on June 14, 2010 2:53 AM writes...

"...the lower environmental and safety standards are a critical part of the equation."

aka "environmental apartheid"

Permalink to Comment

33. RandDChemist on June 14, 2010 7:31 AM writes...

"My feeling is that Big Pharma is just imploding. The consolidation in the pharma industry has been going on at a rapid pace since the 1990s, and with each new purchase-like Pfizer just bought Wyeth and Merck just bough Schering-I'm not sure why they bother buying these other companies, because they just seem to fire everyone right afterward." -David Moskowitz, CEO at GenoMed

Permalink to Comment

34. RTW on June 14, 2010 8:42 AM writes...

Well - There are some opportunities for US educated Med Chem PhD's in China and India. I know a few that have returned to China or India to lead, direct or start research centers there. But they are also native speakers (Chinese anyway) and have a great deal of inductry R&D experence from the US. So they are taking it with them.

US Pharma and Chemical industry wants cheaper labor period.... People coming to the US on a visa will generally work for less than a US educated scientists with the same experience even if that scientist originally came from outside the US. In the 80's plenty of undergraduate scientists came here earning advanced degrees here and stayed. Now many of them even have to return to their home countries where their experience is valued. Unlike here, where your experience just means you are overpaid in the eyes of management!

Permalink to Comment

35. JasonP on June 14, 2010 2:36 PM writes...

Great article related to this:

http://www.miller-mccune.com/science/the-real-science-gap-16191/

Permalink to Comment

36. anon on June 14, 2010 2:41 PM writes...

#29 and #31 and others are correct. I have nothing against FAIR trade, but competing against slave labor locked in toxic waste-filled synthesis camps hardly rates as "fair" in my book. Why should we not set tariffs to account for the unequal playing field? I know Derek is a bit of a "free trade" enthusiast, but he's also gainfully employed.

Permalink to Comment

37. Anonymous on June 14, 2010 2:52 PM writes...

# 36 it is amazing how fast your attitudes change after you have been laid off several times in your 40's.

Those that have never lost a job cannot fanthom what it is like to be out looking for a job in this environment and have the luxury of their opinions on fair trade/economy.

I always say it is like explaining the responsibilities of having children to single or childless couples. You can't.......so don't bother.

Permalink to Comment

38. Dee Meyers on June 14, 2010 5:10 PM writes...

I don't think it helps anyone much to whine about how bad and pathetic the science or its' practice might be in ChinDia.

You can't expect innovation from an activity you no longer perform. The more one tries to reduce even manufacturing to a checklist of executables, the more attractive it appears to ship that checklist execution overseas. What is so often lost in translation is that gone with the checklist is the opportunity to innovate on it or with it. There's just no two ways about it. Want to innovate on something other than lawsuits and CDOs? - keep ALL checklist distillates here in the US. The notion that innovation can somehow be divorced from daily conduct of checklist activity is MBA baloney. But don't blame the ChinDians for our lapses in decision making.

Permalink to Comment

39. expharma on June 15, 2010 7:26 AM writes...

It is a result of McKinsey and Welch's legacy
how many APIs are made in US, or for that matter intermediates and such. As for Lilly, feel no sympathy for them! The management has put in place a checklist for the projects. They also bowed out of the HIV and HCV compounds. Can they say risk adverse?
What is striking is the difference in the attitude of the gov and regulators.

"As plant manager Sheena Behn tells the newspaper, "There's no point in having a manufacturing site in the West to supply products to China." And not just because of the shipping time from West to East, but also because Chinese officials like products to be made in-country."

Read more: AZ's Wuxi site key to Chinese growth http://www.fiercepharma.com/story/azs-wuxi-site-key-chinese-growth-plans/2010-06-07#ixzz0qvL5UDSk

Permalink to Comment

40. processchemist on June 15, 2010 7:57 AM writes...

"There's no point in having a manufacturing site in the West to supply products to China."

Obviously not. But the problem is that "There's no point in having a manufacturing site in the West to supply products to developed countries".
The pressure to cut manufacturing costs is older than the one to cut R&D costs. And these kind of pressures know no limits (see the GSK Puerto Rico plant - closed years ago after an FDA warning letter: site closure was the cheaper option).
A side effect of the huge shift of API manufacturing to India first and then to China has been a vertical drop of the involved know how in western countries (that was a typical kind of industrial knowledge). I can easily predict an equivalent loss of knowledge in the R&D sector.

Permalink to Comment

41. disgruntled on June 15, 2010 7:29 PM writes...

Agree with # 33. The emperor has no clothes. Lechleiter is in over his head.

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42. Anonymous on June 16, 2010 4:12 AM writes...

"The pressure to cut manufacturing costs is older than the one to cut R&D costs."

As BP's little local difficulty proves. Cost cutting always has consequences in the end.

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43. anon on June 18, 2010 6:51 AM writes...

And how soon we forget the cost cutting at Toyota. How much did that save?

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44. Nameless on June 22, 2010 2:41 PM writes...

The problem is Eli Lilly is top heavy now they are crashing down. They should have better manage their resources and spent more wisely now people will suffer to unemployment and indianapolis economy hit.

Permalink to Comment

45. Nameless on June 22, 2010 2:42 PM writes...

The problem is Eli Lilly is top heavy now they are crashing down. They should have better manage their resources and spent more wisely now people will suffer to unemployment and indianapolis economy hit.

Permalink to Comment

46. Anonymous on June 22, 2010 6:25 PM writes...

"You're right - you can't have it both ways."

GSK has everyone beat in the multiple personality disorder business.

At GSK we are simultaneously:

1. shifting GSK R&D jobs From GSK Europe/UK/US to GSK China because its cheaper
2. outsourcing 50% of all R&D to external companies because its even cheaper than GSK China
3. in-sourcing other Rx companies R&D work to GSK US because we think we can do it better

unbelievable, we are outsourcing because we think its cheaper, but we are trying to convince other companies to pay us to develop their products

Looks like GSK is having a 'three-way' with itself.

Permalink to Comment

47. lab consumable on June 23, 2010 11:05 PM writes...

"hard" to have a 3-way if you're impotent

GSK R&D is a limp noodle

can you say "shrinkage" ?

Permalink to Comment

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Permalink to Comment

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