Saturday, June 26, 2010

A Cautionary Tale

I’m going to run off the reservation a little today. (OK, maybe more than a little, but, I think the point is important.) The media has been full of stories for most of this year about several, large corporations (e.g., Toyota, BP, Massey) that have gotten themselves into a lot of trouble. (Check out Matt Krantz’s USA Today June 4, 2010 article, .) Now, you’re probably wondering why I’m blogging about these companies and what’s the relationship with Big Pharma?

The connection is cost cutting. Relentless cost cutting to the exclusion of all else. I’m not implying that these companies are alone in this. The mantra of cost cutting to enhance shareholder value has been around for at least a generation. It sounds seductively simple, unnecessary costs should be eliminated. The good costs are those that enhance productivity and everyone goes home happy. Right?

Here’s where I’ve always had a problem with this rather simplistic view of things. What’s a good cost? The financial analysts and media tend to look at earnings per share (EPS) and year over year profits. The fact that routine maintenance costs, expert staff, and training costs for the remaining employees have been reduced, if not outright eliminated, seems to be glossed over. And, let’s not forget about research and development expenditures which might go a long way to explaining the drying up of the product pipelines at drug companies lately.

Corporations have been becoming increasingly complex for a long time. Managing complexity as many of our readers know from firsthand experience is no simple matter. So, how can a simple measure like how much less have we spent than last year be used while the business is not exactly simplifying?

Product recalls may prove to be leading indicators in the long run of underlying problems. Of course, that assumes the products are being recalled in the first place. Take a look over at the FDA’s website for drug recalls ( ) and ask yourself how can these things happen to companies like Pfizer?

Where I’m going with all this is what should we expect to see with Big Pharma and their smaller brethren? I’ve blogged before about how large life sciences companies are collections of products and services that are almost impossible for one executive to manage.

The argument of synergy is often trotted out, but, I have yet to see a consistent track record for that one. In fact, I can’t even think of a good stand alone example of one. (I invite the readership to post with any that they may be aware of.)

In closing, I believe that we are seeing the start of a new trend for business and especially in the life sciences sector and that is, large, complex businesses struggling to understand what expenditures are necessary and which aren’t. Since figuring this one out is tough, I expect that we’re going to see declining profits for some time.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

Sunday, June 6, 2010

Offshoring – Gone Too Far?

One question that Larry and I get all the time is when do we think the offshoring trend will reverse and all those jobs will start coming back home to the U.S.?

Well, we don’t have a date but we think we’re seeing some signs that we’re close to the high tide mark.

Earlier, we blogged that when the cost differential between manufacturing in this country versus overseas begins to narrow the offshoring incentive will begin to disappear. We may be getting close to this event.

Recently, the media have been full of stories about worker suicides at manufacturing facilities in China because of low wages and poor working conditions. In particular, Foxconn Technology, manufacturer of iPhones and iPads among many other globally recognized brands has been receiving a lot of attention. See Elaine Kurtenbach’s Associated Press article from MSNBC for a good write-up ( ).

Even the Chinese Communist Party (CCP), never particularly worried about the status of its own downtrodden masses, seems to be concerned about the current state of affairs.

I’ve always been of the opinion that global offshoring and outsourcing has been based on a fallacy. That fallacy being that global companies could always find increasingly cheaper, educated pools of workers to happily provide world class products and services. The early adopters profited from this. Latecomers either had to pay more or move onto labor forces that were further removed both geographically and culturally from consumers.

I know of one global company whose outsourcing/offshoring teams are simultaneously chasing lower wage costs eastward across Europe and westward across Asia. They’ll probably collide somewhere in Kazakhstan sometime in the next few years. And then what? (Am I the only reminded of the “greater fool theory” from Wall Street?)

The game’s over folks or it soon will be!

I predict that the United States will begin to start bringing jobs back home. There will also be hiring to offset the additional job cutbacks in the pursuit of greater profits. China and other offshore destinations are not the only ones having to deal with a troubled work force. Eve Tahmincioglu, an MSNBC contributor, wrote an article this week concerning the rise in workplace suicides in the U.S. ( ). Economic problems are blamed. But, could what we’re seeing here in this country simply be the flip side of the coin that we’re seeing in China? What happens when American workers stop fretting about their economic situation, taking it out in themselves and decide to do something about it? Unions and confrontation with management have a long history in the U.S.. Maybe that 9.9% unemployment number may start to come down.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

Saturday, June 5, 2010

Medical Devices – Sideshow Marginalization?

One morning the other day, I was rushing to prepare to leave for work (Yes, I do have a real job.) when I stopped to check The Weather Channel ( ). Impatiently waiting for commercials to go by, I suddenly saw Andrew Thicke of Growing Pains fame ( ) touting diabetes testers for CCS Medical ( ). There was something about the commercial and Alan’s spiel that reminded me of other commercials highlighting powered wheelchairs (I still can’t get that tune out of my head.) and Lee Majors’ Bionic Hearing Aids ( ).

If you’ve been following my recent blogs concerning what’s been happening in the life sciences industry, in particular its slowing momentum, you’ve probably noticed that I believe the wheels are starting to come off the industry’s bus. Commercials like these, admittedly not from the industry leaders, highlight this trend for me.

The direct-to-consumer (DTC) advertising campaigns of recent years seem to a new phase or maybe it’s a new low. What started as Sixties-like art films morphed into light, romantic comedy skits with side effects voice over’s thrown is as an afterthought and, now, appear to be moving into a new phase more like the Home Shopping Network ( ).

For me, another sign of commoditization of an industry is mass marketing on the cheap. No disrespect to either Alan Thicke or Lee Majors, but I doubt that they are earning from these product endorsements what they used to in their salad days.

I also think that this is a sign of worse to come for television viewers. In a variation of Gresham’s Law, ‘Bad commercials drive out good.’ (If there was ever anything like a good commercial.) For those requiring proof just look at what reality TV has done to television.

Once upon a time, Stryker (SYK, ) had television commercials that were what one might call high brow. I wouldn’t call them exactly community service but you get the idea. I haven’t seen these for a while. Maybe they’ve been pulled or I’ve lowered the standards of my television watching. Something tells me that Stryker wasn’t getting the desired bang for their buck.

So where could this trend lead? Will we one day see a cable channel dedicated to pharmaceuticals and medical devices? Will we see the television favorites of years past hyping products? Would Sally Field suit up as the Flying Nun again? ( ) Lee Majors has great brand potential with the Bionic Man. Lindsay Wagner ( ) could even make a comeback!

OK, maybe I’m pushing the edge of the envelope here but you get the idea. Standards are continuing to drop in the life sciences area.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin