The real money in biotechnology is not just publicly funded research grants, but also venture capital, private equity and research and development allocations from big pharmaceutical companies. The business plans for these speculative investments depend on the big pay-offs that might result from the discovery of new preventions and cures.
It was not an accident that pharma stocks hit a rough patch once the election outcome was certain – in the five trading days following the election, they were down nearly 5%, eliminating $50bn in market value. Congressional ‘show trials’ over prescription drug pricing are a distinct possibility and populist rhetoric can run high. If the return side of the investment equation comes under sustained political pressure, investors who allocate capital to biotech may decide to rethink.
The contribution of global brainpower to the US biotech industry cannot be underestimated, both in the US and in US companies operating abroad. Among the newly ascendant politicians, however, are some who have been on the reduction and no expansion side of the H-1B visa programme debates. H-1B is a programme for importing scientific talent to the US. Reflecting strong demand, this fiscal year’s quotas were fully accounted for before the year even began, just as they were last year.
Most companies move some activity offshore as part of a normal growth strategy, to access specialised talent pools as well as new markets. Some companies have tried to explain that if they cannot recruit talent locally or import sufficient brainpower, they are forced to move even more work offshore than is called for in their globalisation strategies. Nevertheless, some senior congressional leaders want to come down hard on companies that send US jobs offshore as well as making it more difficult to import the talent they need.
Many US cities and states have made some forms of biotech a target cluster in their development strategies. H-1B constraints in Washington will make it increasingly difficult for them to prove that the biotech talent will be available. And, if pharma pricing pressure begins to alter the fundamental risk/reward construct of the biotech industry, the investment capital fuelling these prized enterprises may begin to tighten as well.
Daniel Malachuk works with business and government leaders on global direct investment strategies. He has advised many of the world’s leading companies and served in the public sector as director of White House operations.