| By Anthony Grenier
outsourcing
Offshoring vs. Domestic
outsourcing W
ith the cost burden on healthcare budgets increasing in Western countries, the pharmaceutical and biotech industries were not exempt from the growing offshoring trend that has been observed over the past ten years in most industries. Generic companies especially have massively outsourced their manufacturing needs to India and Eastern Asia. Innovating companies too, but to a lesser extent. This article will look into the pros and cons of offshoring versus maintaining production locally.
Innovative vs. Generic products The first distinction to be made is between the highly cost competitive generic and low margin over-the-counter (OTC) products, and the innovative pharmaceutical products. From when the generic industry soared in the 80s and 90s, China and India have always been powerhouses when it comes to manufacturing non-patented or off-patented pharmaceutical ingredients. Driven by cost reduction initiatives by Western governments, the 2000s saw an exponential increase in the number of fully integrated companies flourishing in India and in Eastern Asian countries like China, South Korea and Singapore. These companies have developed generic dossiers and offered them to Western generic companies willing to penetrate their own market. These same Western generic companies have simply outsourced their domestic manufacturing to emerging countries too. India and China were obviously the big beneficiaries of this major industry trend, while OTC and private labels products have followed the same trend. Driven by cost reduction initiatives in sourcing, but much more conservative in its approach due to intellectual property protection, innovation companies also came to these emerging countries progressively. First, the Big Pharma companies launched jointventures in jurisdictions like China, dealing
with Contract Manufacturing Organizations (CMOs) especially, while maintaining a strong oversight over them. Typically, the “man-inthe-plant” model was the most successful, meaning that after due diligence, including compliance acceptance from corporate auditors, CMOs were welcoming on site temporary employees from the sponsor company. This approach is still widely used even today by medium and large biotech companies as well as by Big Pharma companies, especially those that have biosimilars or biological products manufactured abroad.
stage. It is more advisable to invest money to better develop and optimize your process upfront and locally. Moreover, sponsors should avoid relying on their offshore CMO to do it for them and as it likely won’t bring the anticipated savings and in the end take longer. Secondly, one should think twice about offshoring some legacy products, as older products are often more equipment and process dependent, therefore even harder to replicate in non-Western countries where machinery brands defer on top of having to revamp the process.
Offshoring
Attractiveness of offshoring
For specialty and small pharma companies, the narrative is quite different. Despite the fact that offshoring is an attractive strategy for lowering technology transfer costs and decreasing the cost of goods (COGs), there are multiple aspects to take into consideration before making the big jump into these markets. First of all, transferring an early stage drug like one in Phase 1 or 2 clinical trials, or a product that is non-optimized, not sufficiently characterized, or with a lack of process understanding to an offshore supplier, will certainly worsen all the challenges typically observed during this critical manufacturing scale-up
The four key opportunities for offshoring include high volume products, technology transfers with a significant Capital Expenditure (CapEx), joint-ventures and when internal resources are internally available. High volume products are particularly suited for offshoring, as savings will cumulate and provide a better return on investment. Likewise, offshoring is a good outsourcing choice when there is a need to invest significantly in equipment and infrastructure. Building up a plant from scratch will be financially much more advantageous for the sponsor willing to accept the risk of offshoring.
December 2016/January 2017 BIOTECHNOLOGY FOCUS 9
