Kalamazoo industry heavyweights weigh in
By Nathan Peck | MiBiz
npeck@mibiz.com
KALAMAZOO — As the economy climbs out of one of the most difficult recessions in memory, there are positive signs around West Michigan.
More than 300 business leaders packed the Radisson Hotel in Kalamazoo for the Kalamazoo Regional Chamber of Commerce's annual meeting to hear the leaders of medical device manufacturer Stryker Corp. and contract research organization MPI Research discuss the recovery, healthcare reform and how Michigan can regain its footing in a changing economy. In a panel discussion moderated by William Johnston, president and chairman of the Greenleaf Trust, MPI CEO William Parfet and Stryker president and CEO Stephen MacMillan said that their organizations had remained strong in the midst of a difficult economy in the state.
As more research is being conducted by smaller startups around the country and the globe, MPI is proving to be a valuable partner in the preclinical and early clinical phases of the biotech, pharmaceutical, medical device, animal health and agrichemical industries, said Parfet. In the 15 years since Parfet joined MPI, the company has grown from a CRO that did toxicology testing for the pharmaceutical and medical device industries into a firm that is getting into the drug discovery value stream. The company provides research support for up to 750 companies around the globe in any given year.
“Only three of our customers are from Michigan. People say ‘isn’t that bad?’ — no, we’re importing all this capital to the region that we are distributing in the community,” Parfet said.
For Stryker CEO Stephen MacMillan, 2009 was a strong year, with revenues of $6.7 billion. Net sales for the medical device manufacturer increased 12.4 percent to $1.8 billion for the first quarter of 2010, and the company posted net earnings of $322 million for the first quarter of 2010. The earnings figures represent a 14.4-percent increase over net earnings of $281 million for the first quarter of 2009. Stryker employs 18,000 employees globally, and approximately 1,600 in Kalamazoo.
“Last year was very challenging for us and the rest of the industry,” MacMillan said. “Yet, we leaped from 375th to 333rd place on the Fortune 500 list.”
Looming large on MacMillan’s radar screen is the coming 2.3-percent excise tax on medical device manufacturers that was part of healthcare reform legislation signed by President Obama in March. The tax, which takes effect in 2013, will add an additional tax obligation of $150 million for Stryker.
“In terms of earnings, this effectively added a 30-cent tax. It puts real pressure on us, how do we enact those savings, how do we do that for our hospital customers? Fundamentally, we have to get more efficient,” MacMillan said. “I worry all the time about these unintended consequences. This could mean a bigger incentive for medical device manufacturers to sell abroad and move their business abroad.”
Healthcare reform, in the mind of Parfet, has been nearly constant for the last two decades. The industry has shifted from a “soup-to-nuts” operation where Big Pharma dominated all aspects of the business from drug discovery through clinical trials and regulation, to marketing and distribution of the product. Through consolidation and downsizing, the major pharmaceutical companies have spun off many functions to CROs and left market space for startup biotech companies with lower overhead to develop compounds at much lower costs.
“(Large pharmaceutical companies) consolidated and became so large that they didn’t become efficient in their drug development. This model has problems and should be fixed,” Parfet said. “For us, for our industry, we were solving this nationally before Obama-care. You are seeing smaller biotech companies focusing on a few compounds. It’s a dynamic, new approach that is getting new drugs to the market a lot quicker and a lot cheaper. We are a part of the solution.”
Both CEOs expressed concerns that Michigan is at a crossroads when it comes to driving money for education. That the Department of Corrections budget surpasses that of education in the state troubles both Parfet and MacMillan. As Michigan tries to shake its reputation as a Rust Belt state and establish its role in an idea-based economy, recruiting talented, motivated professionals is becoming a major concern.
“We are trying to stop the gridlock with our elected officials. Everyone wants compromise, but no one wants to compromise. Look at corrections — if we can’t get it under control, we run some real risks going forward,” Parfet said. “With this gridlock, if we aren’t careful, the world will pass us by.”
