WuXi and Covance Call It Quits

• Report this Comment On October 02, 2008, at 4:41 PM, michaellee1818 wrote:

  Many reasons indicate bullish on the pharma research and development outsourcing companies are foolish:

  1. We saw the boom and failure of electronic outsources companies, like JBL, CLS, etc, in the late 1999 and earlier 2000.

  2. The management of big pharmas and small biotechs are not sure how these waves of outsources are going to benefit their drug discoveries efforts. So far every company seems just following the trend and rushes to find partners in India and China. But the results are not that good. I didn't hear anyone find a super chemical from their outsourse efforts. And the cost of outsources are going higher and higher and eventually going to level out with their internal research and development cost.

  3. The biggest problems with outsources are the intellectual protection. How can you trust your partners with countries like China and India even the baby food produced in those countries are not safe.

  4. Current big pharma and small biotech executives are mostly pursuing on cheat and quick results and forgot drug discovery needs serious,diligent scientific researches. Good drugs come with patient and detailed scientific studies. Relying on outside partners and solely focusing on commercial purpose won't be fruitful. This is why although the breakthrough of humangenone in the 1990's and big dollars spent following this by pharmas and biotechs were not fruitful. In fact the new drugs FDA approved in 2008 are less than the new drugs approved in FDA in 1982 when much less money was spent on drug R&D.

  5. Pharma executives and biotech alike will soon realized the efforts spent on outsource researches are really waste time and money. They will suddenly reduce the capacities of outsources. Just like in the 1990's, those executives believed in computer modelling can figure out a wonder molecule that ultimately didn't churn out anything. Most the computer modellers lost jobs later on. In later 1990's combinatorial technologies such as combinatorial chemistry seems solved the bottleneck of drug discovery. That didn't work out either. Most of the combinatorial departments in big pharmas were ultimately dissolved.

  6. Like the electronic outsourcing conpanies, pharma outsourcing companies need huge investment and fast expansion in their research facilities and headcount expansions when contracts are signed. When pharmas and biotechs start to reduce or even stabilize their amount of outsorucing, the fix cost for those outsouring companies are going to huge. The already low margins are going to be even lower.

  In all, the evetual fate for these pharma and biotech drug research and development outsourcing companies are going to the same as electronic outsourcing companies in the 1990's. I think if Obama become the next president, the political hurdel of outsourcing researches to other countries are going to much higher. The stock price for those companies outside US, like WX, is going to trend lower.

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