The flattening world and its impact on U.S. biotech

30 Aug The flattening world and its impact on U.S. biotech

Madison, Wis. – In Thomas Friedman’s 2005 New York Times’ article “It’s a Flat World, After All” (Friedman is author of the book “The World is Flat: A Brief History of the Twenty-First Century”), he contrasts a personal trip in 2004 to India to Columbus’s 1492 trip to the New World. Whereas Columbus told the Spanish king and queen that “the world is round,” Friedman reported back to his wife that the world, in fact, is not round but flat.
Friedman’s epiphany really was about the globalization trend which he divides into three periods:
• Globalization 1.0 (1492-1800), which shrank the world from a large size to a medium size as countries globalized their efforts in search for imperial conquest and natural resources.
• Globalization 2.0 (1800-2000), which shrank the world from a medium size to a small size, and was characterized by companies globalizing for markets and labor.
• Globalization 3.0 (started in 2000), which is currently shrinking the world from a small size to a tiny size and at the same time flattening the world, characterized by individuals and small groups globalizing in search of empowerment.
Friedman posits that the first two stages were primarily driven by European and American companies and countries, but that the third stage is being driven by non-Western, non-white societies. According to Friedman, every color of the human rainbow will take part.
Friedman also lists 10 events or forces that came together during the 1990s and converged by 2000 to produce this last stage:
• 11/9 (not 9/11): The falling of the Berlin Wall in 1989, which in part previously defined the world as a single space (keeping people inside Germany).
• 8/9/95: The day Netscape went public, which brought the Internet alive by providing us with the browser to display Website images and data stored on these websites. Secondly, this IPO also triggered the dot-com boom (and then bubble). The further significance of this is that billions of dollars were invested in fiber-optic cable (particularly a global undersea-underground network), which drove down the cost of transmitting voice, data, and images, and increased people-to-people connectivity.
• 2000: Y2K was an event that threatened computer networks around the world and thousands of Indian engineers were enlisted to fix this potential problem, creating a tremendous human and computer infrastructure in this country.
The next group of “flatteners” focused on new ways in which individuals and companies could collaborate and share knowledge.
• Outsourcing: All kinds of work from accounting to software writing could be shifted to another part of the world, and be done cheaper and better.
• Offshoring: Sending a whole factory to be set-up in another country.
• Open-sourcing: An example was Linux, a computer operating system that was set up with totally open public access, allowing engineers around the world to collaborate online and work for free.
• Insourcing: This is where a company like United Parcel Service comes into another company and takes over the whole logistics operation, including online order-taking, customer repairs, and goods delivery.
• Supply-chaining: An example of which is Dell, where an online order triggers immediate production and shipment from another place in the world.
• Informing: Take Google (and Yahoo and MSN Search), which allow anyone to collaborate or mine unlimited data by themselves.
The last “flattener” was yet another enabler.
The Steroids: They include wireless access and voice over Internet protocol (VOIP). According to Friedman, the steroids turbocharge all of the above types of collaboration so that people can do any of them, from anywhere, with any device.
Another theme that Friedman harps on is what he calls key gaps plaguing American society, beginning with the “ambition gap.” According to Friedman, too many Americans have gotten lazy, with a sense of entitlement in comparison to young, energetic Indians and Chinese.
The second gap is the “numbers gap.” The U.S. is simply not producing enough scientists and engineers; instead we import and train them from China and India and elsewhere.
The third gap is the “education gap.” American CEOs are outsourcing not just to save on salaries but because they can often get better-skilled and more productive people.
Some key facts:
• By 12^th grade, U.S. students are scoring near the bottom of all industrialized nations.
• In 2001, India graduated more than one million more students from college than the U.S.; China graduates almost double the number of U.S. college students.
• China has six times as many graduates in engineering than the U.S.
World-flattening and biotech
So how does this all impact the biotech industry, an industry mostly created by the U.S. and one in which the U.S. still dominates?
While this is all good, take note of the following:
• The rate of growth of biotech companies in the U.S. has slowed (i.e. the number of new companies started), and most of the growth in new companies is coming from Asia, India, and Europe.
• If you take a sharp look at most U.S. biotech companies, you will find a high preponderance of international scientists, including Indians, Chinese, Koreans, Israelis, Russians, etc. Where are the Americans?
• The international harmonization of regulatory activities (and agencies) for drugs and devices, and the acceptance and implementation of these by foreign countries, is leading toward a global registration dossier that would allow registration in many countries at the same time.
• The saturation of the U.S. patient population for clinical trials is driving the performance of these trials off-shore, where patients can be found faster and cheaper than in the U.S. As long as these clinical trials meet ICH (International Conference on Harmonization) guidelines on technical requirements for registration of pharmaceuticals for human use, they can and will be used increasingly in U.S., European, and even Japanese registration.
• The approval of bio-generics in the U.S. and Europe will allow multiple Indian and Chinese generic pharma manufacturers, which have previously achieved Food and Drug Administration review and approval of their manufacturing facilities, and filed drug master files (DMFs) in these regions to gain access to huge markets and flourish quickly. This substantially will change the dynamics of the generic pharmaceutical market, eliminating many of the current U.S. players.
Even the concept of the U.S. biotech cluster is being challenged abroad. The cluster concept represents a high concentration of similar but competitive firms, as well as supporting industries needed to help these firms grow and create a high level of innovation. Often, a nearby university is the anchor for such innovation.
The biotech cluster concept is thriving overseas. In Denmark and Sweden, you have Medicon Valley, a replica of Silicon Valley, with more than 100 biotech companies in close proximity. Similar clusters exist in the U.K., Germany, Switzerland, and France, but also in the Kansai region in Japan and in Tokyo.
The four Asian “S-cities,” Sydney, Seoul, Singapore, and Shanghai, also represent growing biotech clusters, and there are several growing biotech clusters in the Indian cities of Bangalore, Hyderabad, New Delhi, Chennai, and Mumbai.
The U.S. currently retains its lead in this vital industry due to several factors, including a high level of R&D, the fact that the FDA is the prevailing world authority for drug and device approval and registration, and the high prices that can be charged in the U.S. for biotech products.
But take note, once again, that other countries are following suit very quickly.
There is also a growing American public exasperation for paying too much for medicines and healthcare. The rapid growth of several chains of walk-in clinics, where patients can get quick access to medical care without a prior appointment and at a moderate price, bears witness to this trend.
This type of healthcare alternative has existed in many countries for years. I was recently in Colombia and met with a leading cardiologist friend who sees, on average, more than 20 patients daily. The average consulting fee for seeing these patients was often less than $10 per patient. A stress test (using a treadmill, EKG, and other equipment) cost less than $50. Contrast this to the U.S., where the consultation fee would cost $250 or more, and the stress test $500 to $1,000.
We already know that in the world of biotech, many key activities of drug development are outsourced, with the biotech company concentrating only on those activities it can do well and competitively. Up to now, this outsourcing has relied mostly on U.S. and European contract research and contract manufacturing organizations (CRO/CMO).
However, the growth of the Indian CRO/CMO industry has been astronomical, and the Chinese will surely follow. And remember that many of the American biotech companies have large numbers of Indian and Chinese scientists that are learning key business skills here and heading back to their home countries.
So even the world of biotech, still heavily dominated by the U.S., is rapidly flattening. What this means to your average biotech company is that it needs to think in terms of global development and commercialization from the start, which shouldn’t be difficult because most biotech company employees represent a mini-United Nations
Biotech companies need to use this diverse employee population as a link to other parts of the world in their global commercialization plans.
See you soon!
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