GSK brings work in-house in bid to boost efficiency and cut costs

09-Feb-2012 - Last updated on 09-Feb-2012 at 09:02 GMT

GSK is bringing outsourced work back in-house and placing manufacturing at existing sites in a bid to boost efficiency.

Big pharma companies have upped outsourcing in recent years to cut fixed costs ahead of the patent cliff. GlaxoSmithKline (GSK), however, is moving some manufacturing and other work back in-house.

“We're bringing in-house a lot of the things that for the last few years we've had outside with third parties. It allows us to procure more efficiently”, Simon Dingemans, chief financial officer at GSK, told the media and investors this week.

Dingemans said the Aranda, Spain production facility is an example of this policy. Late last year GSK committed to investing €25m ($33m) in the plant, which primarily produces respiratory products, to equip it to manufacture Panadol (paracetamol).

“It saves us going to an outsourced third party, we're loading our own plant more effectively, and we’re driving down the cost of goods in the consumer business by tens of per cent. And that makes us much more competitive in what you know is a competitive market”, Dingemans said.

The move is part of a strategy, covered yesterday by our sister publication in-PharmaTechnologist, to cut costs by simplifying supply chains. “If you align the plant more closely with where you're actually selling it, you can reduce [costs] significantly”, Dingemans said.

News of supply chain optimisation efforts at GSK comes the week after fellow UK giant AstraZeneca outlined plans to eliminate 1,350 operations jobs. In its release AstraZeneca said it has improved the “efficiency and effectiveness of its supply chain” and outsourced more manufacturing in recent years.

Taking control

GSK brought work back in-house in part to gain control. Others are turning to insourcing to meet the same goal. At AAPS in October several CROs (contract research organisations) said interest in insourcing was on the rise. A month later the AMRI – Eli Lilly deal added credence to these claims.

AMRI is hiring 40 full-time chemists to work with Lilly in Indianapolis. Speaking after releasing fourth quarter results this week, Mark Frost, chief financial officer at AMRI, gave an insight into why Lilly, which has led the industry in outsourcing, is using insourcing to add to its in-house capabilities.

“One of the major reasons Lilly did this and pulled [the work] back from China was to improve project management and communication with their own scientists”, Frost said. The move eliminates delays related to time zone differences too.

Moving work in-house also helps companies to better manage their infrastructure, Frost said, and make use of the significant amount of unused laboratory space at US-based big pharma companies.

Also, it could be a good year for companies to bring work back to the US and show a major customer, the US government, they are responsive to the needs of the economy. “The political climate and election year focus on US job creation are an added tailwind”, Thomas D’Ambra, CEO of AMRI, said.