Outsourcing of production gaining pace in big pharma

The pace of change indicates that some beliefs that were once entrenched within the average industry executive have been rooted out: it's no longer necessary to join R&D to manufacturing; intellectual property no longer needs to be jealously guarded in-house; and the skills needed to make drugs can be found just as readily in emerging markets.

" This shift towards outsourcing of manufacturing is likely to be followed by other functions within pharmaceutical companies, including some elements of R&D ," commented Murray Aitken, senior vice president for IMS' Healthcare Insight group, at a press conference earlier this month.

IMS has identified outsourcing of production as one of its key 'harbingers of change', the top 10 strategic issues facing the pharmaceutical industry at present.

Although it is something the industry has adopted largely out of necessity as it struggles to cut costs - faced with a tougher operating environment and slower growth rates - outsourcing also has other possible benefits.

It could hasten time to market for new products, give multinationals an entry point into emerging pharmaceutical markets, and make it easier for companies to manage changes in product demand and " concentrate on differentiating competencies such as innovation and brand building," according to IMS.

But the flipside is that despite the clear technical prowess of countries in emerging markets - particularly India - there is uneasiness about the quality and safety of some of the products sourced from them.

While many of these concerns stem from recent problems with consumer goods, some have involved pharmaceutical, said IMS. "

As manufacturing processes become more complex, pharmaceutical companies will be required to provide impeccable sources and guarantees ," according to IMS.

It points to the problems Sanofi-Aventis had with its manufacturing contract with Inyx USA, which became bankrupt last year and left the drugmaker to deal with alleged breaches of good manufacturing practice (GMP).

The drug industry should also be mindful of lessons from other industries, such as electronics.

For example, Taiwan's Acer was a contract manufacturer but eventually developed its own personal computer brands and started to compete with its former customers.

" Co ntract manufacturers can turn the tables ," says IMS, noting that concerns about intellectual property protection as complex manufacturing and processing information is signed over to third-parties has receded but " could well come back to haunt major pharmaceutical companies as the true cost and complexity of manufacturing becomes transparent. "

Finally, IMS points out one concern that has not yet become overt - the economic implications of the pharmaceutical industry taking manufacturing and R&D jobs out of its strongholds in the US and Europe.

The industry provides 640,000 jobs in the European Union, including more than 100,000 in R&D, as well as a €34bn trade surplus.

This is so valuable to the region that political intervention may follow if it is perceived as being under threat, suggests IMS.