One of my favorite quotations has always been from George Santayana, “Those who do not remember the past are condemned to repeat it.” You may ask why am I suddenly so philosophical?
Well, while preparing to write this blog (yes, contrary to popular belief, I do research for my blogs, it’s not all just flow of consciousness) I googled “pharmaceutical companies issues” and received back the usual gazillion replies.
As I started to go through the list one by one from the top (I really hope that my readers, assuming I have any, appreciate what I do for them) I noticed two things.
First, we’re not alone. The topics that we’ve been blogging about for several years now, declining profits, stagnating product pipelines, and an industry in crisis are being written about by many people. And they’re writing a lot.
Next, and this surprised me, people have been writing about this for a long time. I mean years.
Larry and I have been talking about these issues for a while now. But, it was only about when we started this blog that our thinking began to coalesce around these issues. But, there were people out there before us. Long before us.
One writer in particular, Bianca Piachaud, wrote a particularly good article (http://findarticles.com/p/articles/mi_m2242/is_1634_280/ai_85370544/?tag=content;col1 ) all the way back in March 2002 for Contemporary Review on the issues facing the pharmaceutical industry which is still relevant today. Think about that. That’s over eight years ago!
Dr. Piachaud made one particularly prescient observation that the past eight years has borne out. She noted that the unsustainability (I may have made up a word here) of pharmaceutical profits because of increasing competition from generics, government policies, and the increasing costs of finding new drugs. There is even a reference to the cost cutting programs being put into place (and which may have gotten some pharmaceutical companies into recent trouble) to try to fend off the inevitable.
I also found in this article, the first rational explanation of why the product pipelines are stagnating. Dr. Piachaud highlights the increasing diminishing returns from research as technology with its costs becomes a larger part of the work undertaken. She also notes the contributions of administrative inefficiencies and increasing bureaucracy (think of Sarbanes-Oxley and healthcare compliance costs) in lowering profits.
The unsettling aspect of Dr. Piachuad’s article is that there doesn’t appear to be any good news soon for the pharmaceutical industry. We may be moving through the middle game preparing for the end game.
Dr. Piachuad has a doctorate from the Aberdeen Business School, the Robert Gordon University, Aberdeen. She is also has written Outsourcing of R&D in the Pharmaceutical Industry published by Macmillan (http://us.macmillan.com/author/biancapiachaud ).
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
Showing posts with label Sarbanes-Oxley. Show all posts
Showing posts with label Sarbanes-Oxley. Show all posts
Monday, May 31, 2010
Saturday, January 17, 2009
After Satyam, Is Wipro Next?
What’s going on in India? Specifically, with its outsourcing businesses. First, there was Satyam and their little bookkeeping problem. (What’s a billion dollars more or less among friends?) Now, Wipro is announcing (http://www.wipro.com/news/NewsDetails.aspx?id=1172 ) that it had been banned by the World Bank from bidding on business for four years because of inappropriate dealings with its employees. Since we are focused on the pharmaceutical and biotechnology businesses and its service suppliers, a question that immediately comes to mind is what is the impact of such seemingly unethical practices by key suppliers to the "ethical" pharmaceutical industry. Does this have the kind of collateral damage that makes the industry question this aspect of their "globalization" and/or "outsourcing/out-tasking" strategies. More to come on this as the situation unfolds.
In the meanwhile, a few questions about the WIPRO situation. First, why is the announcement made now? Compared to Satyam’s problems, this is the proverbial parking ticket. A cynic might say this was a great smoke screen for what otherwise might have been a serious ethical violation. Second, do these ethical violations indicate more substantial problems in the Indian outsourcing sector? Third, could these ethical lapses impact growth possibilities especially in the United States with its holier than thou attitude in these matters? Finally, could legislation like the Foreign Corrupt Practices Act (FCPA) or Sarbanes-Oxley preclude Wipro from actually bidding for work?
Back to the first question, why make the announcement now? OK, take advantage of the confusion, but could there be more? Either more transgressions or more firms? I don’t know, I’m just asking.
Second the question of fraud and questionable payments. While Bernie Madoff has proven that the Western world doesn’t have a lock on ethical behavior, India’s problems could be the tip of the iceberg. What other controls could be compromised? Information privacy is important to companies that outsource and offshore, especially the health care/pharmaceutical industry. How can anyone be sure that their information and their secrets are safe? Might there be HIPAA violation if such privacy concerns surface?
Third, growth for the outsourcers could be affected in several ways. One way is by potential customers staying away from the affected companies. Another could be new competitors arising, playing on the Indian companies’ weaknesses. Maybe Singapore is more expensive but has a much higher ethical rating. (Remember an American teenager getting caned for vandalism? Think what they’d do to Bernie.)
And, last but not least, what’s the potential for fines and liability in the United States? Or, look at it another way. How many government agencies and other quasi-government bodies might ban these companies from bidding on work? Could we see policy decisions preventing work from going offshore? Let’s not forget that the US government is slowly acquiring the US financial services industry while I’m writing this blog. The new administration might have an opinion about these Indian companies doing work there. Should such events occur, what is the spillover effect to the Pharmaceutical and allied businesses?
So, let’s summarize. I believe that the Indian outsourcing industry after a good run that began with the Y2K work of the Nineties is going to go through a period of consolidation. Unfortunately, combined with the recent tragic events in Mumbai, foreign companies may begin to have second thoughts about doing business there. The stronger Indian players could acquire the business of the faltering firms and be stronger than before. Proactive responses to the problems in the industry could provide opportunity. However, more spending may be required to put the controls and processes in place that large, multinational companies are expecting. There are still good reasons to outsource to India, but, India will have to work harder to keep what it has and gain new business.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
In the meanwhile, a few questions about the WIPRO situation. First, why is the announcement made now? Compared to Satyam’s problems, this is the proverbial parking ticket. A cynic might say this was a great smoke screen for what otherwise might have been a serious ethical violation. Second, do these ethical violations indicate more substantial problems in the Indian outsourcing sector? Third, could these ethical lapses impact growth possibilities especially in the United States with its holier than thou attitude in these matters? Finally, could legislation like the Foreign Corrupt Practices Act (FCPA) or Sarbanes-Oxley preclude Wipro from actually bidding for work?
Back to the first question, why make the announcement now? OK, take advantage of the confusion, but could there be more? Either more transgressions or more firms? I don’t know, I’m just asking.
Second the question of fraud and questionable payments. While Bernie Madoff has proven that the Western world doesn’t have a lock on ethical behavior, India’s problems could be the tip of the iceberg. What other controls could be compromised? Information privacy is important to companies that outsource and offshore, especially the health care/pharmaceutical industry. How can anyone be sure that their information and their secrets are safe? Might there be HIPAA violation if such privacy concerns surface?
Third, growth for the outsourcers could be affected in several ways. One way is by potential customers staying away from the affected companies. Another could be new competitors arising, playing on the Indian companies’ weaknesses. Maybe Singapore is more expensive but has a much higher ethical rating. (Remember an American teenager getting caned for vandalism? Think what they’d do to Bernie.)
And, last but not least, what’s the potential for fines and liability in the United States? Or, look at it another way. How many government agencies and other quasi-government bodies might ban these companies from bidding on work? Could we see policy decisions preventing work from going offshore? Let’s not forget that the US government is slowly acquiring the US financial services industry while I’m writing this blog. The new administration might have an opinion about these Indian companies doing work there. Should such events occur, what is the spillover effect to the Pharmaceutical and allied businesses?
So, let’s summarize. I believe that the Indian outsourcing industry after a good run that began with the Y2K work of the Nineties is going to go through a period of consolidation. Unfortunately, combined with the recent tragic events in Mumbai, foreign companies may begin to have second thoughts about doing business there. The stronger Indian players could acquire the business of the faltering firms and be stronger than before. Proactive responses to the problems in the industry could provide opportunity. However, more spending may be required to put the controls and processes in place that large, multinational companies are expecting. There are still good reasons to outsource to India, but, India will have to work harder to keep what it has and gain new business.
As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.
Contributed by Guy de Lastin
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