Compared with other business sectors, the biopharmaceutical industry has been a high-tech laggard when it comes to outsourcing and off-shoring. That's changing as companies acknowledge the strategic, cost, and market benefits. Over the past seven years of tracking outsourcing trends (1), I've seen interest in outsourcing grow, but that has kicked into high gear over the past couple years. Partly due to the economic and funding crisis and partly as a result of industry maturation, outsourcing is taking greater prominence as biopharmaceutical companies gain experience in managing outside operations. Bioexecutives are considering outsourcing models and creating the tools needed to assess different operating strategies.

This year, our seventh annual survey of biopharmaceutical manufacturing and capacity analyzed the data of 327 global biomanufacturer respondents and 125 suppliers to this industry. As detailed in the “Survey Methodology” box, the results cover a broad range of issues including capacity and outsourcing, downstream operations, disposables use, training, current budget shifts, refocusing of resources, quality management, and other trends. The study evaluates shifts over time and differences based on location.

Data this year indicate that companies are significantly more focused on improving manufacturing performance and efficiencies within existing budgetary and staffing levels. Outsourcing is one way organizations with the ability to manage outside vendors can achieve necessary efficiency. Companies often gain experience with outsourcing by progressing from managing less critical functions such as testing or fill–finish toward more complex services such as process development. As managerial experience increases, clinical-scale manufacturing and full-service operations can be introduced.

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Industry news bears out this trend, especially in reports of how much Big Pharma plans to outsource. For example, Pfizer announced that it will increase outsourcing levels from ~17% to ~30% over the next few years. Merck also plans to double current outsourcing levels to 35% overall in the near future. AstraZeneca said in the fall of 2007 that it would outsource much of its drug manufacturing in 10 years, especially for projects with a sound business case.

Manufacturing Locally to Market Globally

Biologics outsourcing has clearly been on the rise. Companies are making decisions about where to manufacture based on strategic f it and proximity to markets. As developing regions such as China, India, and the Middle East grow economically, their demand for biologics is growing as well (2). Expanding middle-class populations are increasing those regions’ attractiveness as potential locations for outsourced and in-country domestic manufacturing.

Biomanufacturing is increasingly taking place in developing regions, and our study evaluated outsourcing outside the United States and Europe. Respondents were asked to predict their current plans for international capacity expansion, and we identified 35 countries as potential outsourcing destinations. Among all respondents, the United States topped the list as being a likely outsourcing destination (with 14% “strong likelihood” and 11.6% “likelihood”) over the next five years. After that, global manufacturers indicated India, Singapore, Ireland, Germany, the United Kingdom, and China as top international destinations.

US and European Outsourcing: Together, US and Western European biopharmaceutical companies represent >70% of the R&D efforts for the global biopharmaceutical industry and its primary sources of new drug innovation. In 1990, pharmaceutical R&D investment in the United States was actually less than that in Europe, but current investment in Europe is only ~70% of the US figure (3). During the past two decades, R&D investment in the United States grew by 5.6×, whereas in Europe it grew only by 3.5× (3). So an interesting angle to our seventh annual report is to see how biopharmaceutical companies in these two regions are outsourcing their manufacturing — and to compare the changes over time.

For example, US respondents see Singapore as an increasingly strong outsourcing destination (38% said the country was a “possible” destination this year, 31% in 2009's report). Ireland jumped significantly as well, to second place this year with 35% considering outsourcing there as at least a possibility. Switzerland also showed a dramatic rise in popularity from last year; it will be interesting to see whether this preference continues into 2011. India ranked third. China fared less well as an outsourcing option for US companies in the latest survey, with an interest drop of nearly 10 percentage points from last year's results.

For Western European biomanufacturers, the United States remains the primary destination for outsourcing. When we evaluate destinations according to any level of interest (rather than just a “strong” or “likely” response), 50% of these companies point to the United States (down two percentage points from last year). And India's potential among Western Europeans grew significantly this year, with 22% considering it a possible outsourcing destination. Following were Germany and the United Kingdom as options, but both countries showed a noticeable drop in popularity from last year. On the other hand, India showed a rise in popularity for Western European biopharmaceutical companies — as did China, reflecting a more favorable view of these emerging markets by European respondents than those in the United States.

SUMMARY OF GLOBAL/LOCAL OUTSOURCING TRENDS



Issues that seem to have increased in perceived importance over the past few years:

• Establish a good working relationship

• Protect intellectual property

• Effectively handle cross-contamination issues

• Offer a secure supply (control of capacity)

• Have regulatory compliance expertise

• Issues that seem to have decreased in perceived importance over the past few years:

• Demonstrate cost effectiveness of services

• Demonstrate a track record with similar products

When asked about predictions of a strong likelihood or likelihood for expansion, Western European biomanufacturers indicated the United States at the top of their list (28.1% of respondents). Following was the United Kingdom (12.6%) and Germany (9.4%). India was next in line, with nearly 9.1% of respondents suggesting a strong or moderate likelihood to expand there (Figure 2). China was ranked lower on the list.

Figure 1: (Click to enlarge)

Figure 2: (Click to enlarge)

However, China has been a very late starter in contract manufacturing, so it may still be too early for us to see it matching the growth prospects of India (4). The few internationally based contract manufacturing organizations (CMOs) in China are doing relatively well — e.g., AutekBio (www.autekbio.com). Nevertheless, there is excess pharmaceutical production capacity in China, where outsourcing is likely to take off once the idle capacity of many production facilities can be dealt with. Future annual surveys will be interesting indicators of when that trigger point is reached and how biopharmaceutical companies respond to the new opportunities that result.