The Biotechnology Industry Organization kicks off its annual meeting in Philadelphia this week with plenty to celebrate. The biopharmaceutical sector especially is coming into its own with a growing number of commercialized products. With maturity, though, comes change. The U.S. has long dominated biopharmaceuticals, with Europe a distant second. But the logic of globalization is increasingly taking hold, and biotech investment is rising in other parts of the world. As has been the case in other industries, the movement will create winners and losers.
An announcement yesterday from Bristol-Myers Squibb (NYSE:BMY) underscores the changing face of the industry. The U.S. drug giant revealed that it has entered into a biologics manufacturing agreement with South Korea-based Celltrion, a joint venture between Vaxgen and three South Korean partners. The terms of the deal were not disclosed, but the press release states that the contract is believed to be the largest ever for an Asian biopharmaceutical contract manufacturer.
The deal should not be dismissed as a freak occurrence. Mike Hildreth, Americas director of biotechnology at Ernst & Young, predicts biotech outfits will rapidly expand offshore deals over the next five to 10 years, Reuters reports. Like other globalizing companies, biopharmaceutical players are seeking cheap labor and greater access to large overseas markets.
Intensified cross-border deal-making is sure to have a number of consequences. Companies like Bristol-Myers and Vaxgen that can take advantage of cheaper labor are likely to see significant benefits in terms of profitability. Consumers in the U.S. also may see gains since outsourcing could slow drug price increases. At the same time, companies that provide contract biologics manufacturing, like Cambrex (NYSE:CBM) and Invitrogen (NASDAQ:IVGN), may have a tougher time winning over clients as more overseas low-cost competitors enter the market.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
