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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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In the Pipeline

« China Outsourcing: Getting More Expensive, Fast? | Main | Ancient Chemistry Comes Back to Life? »

September 8, 2010

Outsource to China, Then Move There?

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Posted by Derek

Yesterday's note on the increasing costs in China led several commenters to mention that the cost savings of outsourcing work are never exactly what the percentages might lead you to think. Time zone problems, miscommunication, supply problems, and all the other things that can slow down work at a distance take their cuts. You have to keep a close eye on such factors, and also on what tasks you're asking your outsourcing partners to do.

So, what about the companies that are trying the project-leaders-here lab-workers-there approach? With all the chemistry being done overseas, you really have to keep on top of things. In fact, I've recently heard that some of the people in Merck's outsourced-chemistry area have been asked to consider relocating to China in order to keep things going smoothly.

I have this secondhand, so I'd be glad to get more (or more correct) details. But from what I heard, these requests have not gone over well, as you might imagine. Anyone on the ground at Merck want to fill the rest of us in?

Comments (25) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. petros on September 8, 2010 9:16 AM writes...

At least one Indian outsourcing site (O2)has already got a night shift
admittedly more for monitoring reactions but could be the start of things

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2. Anonymous on September 8, 2010 9:21 AM writes...

It was only a matter of time...

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3. RB Woodweird on September 8, 2010 10:01 AM writes...

You can actually hear the gears turning in the CEO's head: Chinese students come to US, get chemistry degrees, go home, work twice as hard for a fourth of the salary, minimal benefits; Chinese business students come to US, get MBAs, go home....

Yeah, expect to see the middle manager who fired your lab behind you in line at the dole shop soon.

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4. Anonymous on September 8, 2010 10:41 AM writes...

This absolutely was the plan. The Wise Heads that now run MRL have now reconsidered, and allowed people to stay where they are. But, Peter continues to make it up as he goes along. It might change tomorrow.

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5. Pharmaheretic on September 8, 2010 11:18 AM writes...

Adapted from Agent Smith's monologue to Morpheus in the first Matrix Movie.

"I'd like to share a revelation I've had during my time here. It came to me when I tried to classify your type. I realized that you're not actually human. Every human on this planet instinctively develops a natural equilibrium with their surrounding work environment, but you MBAs and Administrative Types do not. You move to an company, and you multiply, and you multiply, until every productive division in that company is consumed.

The only way you can survive is to spread to another company. There is another organism on this planet that follows the same pattern. Do you know what it is? A virus. MBAs and administrative types are a disease, a cancer of productive companies. You are a plague, and we … are the cure."

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6. Daniel Levy on September 8, 2010 12:27 PM writes...

As one who has initiated and managed outsourced projects as necessary tasks, this does not surprise me. One of the challenges associated with outsourcing is oversight and, as one would expect, direct oversight is far more efficient than long-distance oversight.

Regarding outsourcing in general, it is not an issue of China, India or some other country. If there is a percieved cost benefit, there is pressure to take advantage of it. Cost benefits to outsourcing are apparent in the lower costs of labor and reduced burden of in-house infrastructure to support in-house headcount. These benefits must be compared to the quality/efficiency of the CRO scientists, the risk to IP containment and time/distance logistics. It is not always clear cut.

In summary, outsourcing provides significant advantages to small organizations with limited resources. However, such advantages may be diminished in larger organizations where infrastructure already exists thus making a combination of in-house and outsourced activities a favorable model. Finally, all of this is subject to change as costs of services increase.

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7. Dan on September 8, 2010 12:58 PM writes...

Hi Derek,

Outsourcing overseas may get a bit more expensive in 2012, at least for medical device manufacturers. With the healthcare bill, importers will need to pay the 2.3% excise tax on the final sales price. A domestic company could set up a subsidiary to manufacturer the device while the parent company acts as a distributor to push the tax further up the supplier chain.

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8. hn on September 8, 2010 2:17 PM writes...

Welcome to globalization! On the other hand, there are tremendous opportunities in China and India for the entrepreneurial minded. Western educated Chindians are returning not just because it is their home country but also because of the opportunities. It may be hard to imagine, but your skills and education might actually be in demand!

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9. Anonymous on September 8, 2010 2:42 PM writes...

Big companies have always moved employees around the world to manage foreign outposts. These were considered steps up the corporate ladder (or banishment from the mothership). Many international assignments were highly desirable plum jobs; and yes your family was secondary to your career and your life always in flux. So what is new? I am surprised it has taken this long as assigning US managers to Asian R&D outposts should make the off-shoring of this function work like a charm. I can not imagine why it is not done wholesale in big pharma these days. If I were young and ambitious I would grab one of these opportunities in a heartbeat as this is the future of drug R&D.

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10. CMCguy on September 8, 2010 3:07 PM writes...

In a twisted fashion the concept of personnel relocation makes logical sense, particularly in earlier discovery stage projects. There is not only direct contribution of (hopefully) valuable expertise, both technical and in dealing with company dynamics, plus the ability to monitor and make course corrections more readily. Although some seem to suggest just churning out analogs is basically technician work that can be done remotely how many medchem programs have hinged on decisions to pursue certain compounds that were extremely hard to make verses a series with chemistry that is easier. These are nuance judgments that would be better made by those with very direct contact with the bench (or those at it) so that appropriate weighing of factors is performed. At the same time further delinkage of chemistry from biology/pharmacology is inherently flawed.

Outsourcing in process/manufacturing world is much less complicated because generally have very concrete goals and objectives but it is still a major headache to execute and attempting this same route for medchem is frightening.

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11. MoMo on September 8, 2010 8:28 PM writes...

Don't forget! It's easy to dispose of toxic chemicals in China too! Just go out back and dump them!

Outsourcing is fun for Environment! Keeps the morticians busy too!

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12. Rock on September 8, 2010 8:57 PM writes...

And don't forget about Pfizer. They have been sending a couple of chemists over to China in 3-6 month shifts to train them in reaction troubleshooting and route design. The ultimate goal is to increase their capabilities, mostly likely so they can eventually fire more bench chemists in the US.

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13. Chemjobber on September 8, 2010 10:23 PM writes...

"And don't forget about Pfizer. They have been sending a couple of chemists over to China in 3-6 month shifts to train them in reaction troubleshooting and route design."

I'm sorry, I gotta ask for confirmation for this. If true, it's a freakin' bombshell. I mean, yeah, who hasn't made a pointed comment or two over the telecon, but troubleshooting? Really?

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14. ss on September 9, 2010 12:37 AM writes...

Merck seems to have pulled out FTEs from two top Indian CROs, thats the latest from the grapevine.......maybe China is more advantageous.....

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15. Anonymous on September 9, 2010 4:14 AM writes...

This might not tell you anything but do those outsourced oversea know what have happened to the leftover chemicals ...

http://bbs.chemnet.com/archiver/?tid-132164-page-22.html

Looks like there's an open market for these over there.

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16. Humboldt Squid on September 9, 2010 9:09 AM writes...

Anyone even thinking about going to China should read "Poorly Made In China" by Paul Midler. The author is a troubleshooter for Western manufacturing companies in China and knows what is going on there. And it is not to the advantage of the Western company.

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17. Anon on September 9, 2010 10:09 AM writes...

Chemjobber, this is in fact true.
I know the chemists who have done this personally.

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18. NYSpursFan on September 9, 2010 11:05 AM writes...

Why is this shocking? Companies like Roche are staffing up in China. If I were Roche, I'd definitely want my best US/EU managers to move to China to oversee things.

http://english.people.com.cn/90001/90778/90860/7134714.html

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19. Anonymous on September 9, 2010 10:18 PM writes...

The increase of cost for contract R&D services from China is inevitable. The 50+% cost benefit may gradually diminish to 10-20%. The only way for China contract R&D service to survive is either changing to independent R&D for new drugs or improving the quality of the contract services. If the quality of the contract services from China is comparable to those from U.S., a 10-20% cost reduction is significant enough that still many US pharma would like to pay for the services. There are increasing number of U.S. trained Chinese scientists returning back to China. Some of them have worked in US-based pharma for many years and many others have obtained MS or PhD from US-based universities. For sure those people will bring back lots of new technologies and troubleshooting skills to Chinese workers, which may or may not have an effect on the quality of Chinese-based contract services. Cross my fingers to see what will happen in the next couple of years.

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20. RandDChemist on September 21, 2010 11:07 AM writes...

Check out Evonik's site in China. I think it's called Lynchem. It was working well until they took over. It was covered in a recent C&E News. Very interesting and not what I would have expected.

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