Sandra Fox04.04.06
Although production of chemical-based pharmaceuticals has long been outsourced to contract manufacturers in lower-cost Asian regions, biopharmaceutical production is still primarily done in North America and Western Europe. Most biomanufacturing directors at pharmaceutical and biotechnology companies typically state that they have no current intention of outsourcing production of biologics to Asian regions. However, the tide is beginning to change.
The worldwide market for biopharmaceutical contract manufacturing will reach $2.5B this year, yet only a small percentage of this work will be conducted in Asian countries. Although small today, this percentage is expected to grow as pricing pressures in biotechnology markets increase and companies seek access to Asian markets. To meet this need, new mammalian cell culture facilities are being built in Asia and experienced biomanufacturing contractors are establishing operations in Asian regions.
For example, in February this year, Lonza Group and Singapore’s Bio*One Capital signed a joint venture agreement to build a large-scale mammalian cell culture plant for contract manufacturing in Singapore, which will eventually have four mammalian bioreactor trains, each with flexible capacity of as much as 20,000L. In mid 2005, Celltrion in Incheon, South Korea announced an outsourcing deal with Bristol-Myers Squibb for the manufacture of biopharmaceutical products. Celltrion has 50,000L of bioreactor capacity for mammalian cell culture. Established entities in Asia such as A-Bio Pharma Pte Ltd., Aspex Division:Asahi Glass Company, the Hong Kong Institute of Biotechnology, Shantha Biotech, Bharat Biotech,
Dr. Reddy’s Laboratories, and Biocon’s Syngene are ready for biomanufacturing business. For biopharmaceutical production, outsourcing to Asia is becoming a reality.
Pricing Pressures Increase in the Industry
In the latest report by HighTech Business Decisions, Biopharmaceutical Contract Manufacturing: Best Practices Pricing Study 2006, 30 directors of biomanufacturing at pharmaceutical and biotechnology companies worldwide were surveyed regarding pricing and production strategies. Outsourcing is part of the production strategy for all respondents in the study. When asked to rank the four most critical selection criteria they use when choosing a contract manufacturer, price is among the top selection criteria for almost every respondent, along with quality, technical expertise, and a strong track record of experience.
Table 1: Willingness to Work with a CMO in Asia to Obtain a Price Advantage: 30 directors of Biomanufacturing at Pharmaceutical and Biotechnology Companies |
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Response | % of Respondents | Requiements Mentioned by 30 Respondents |
Yes, under certain circumstances | 93% | • The CMO must have a proven track record, experienced people, references, and a good reputation. • IP protection is in place. • The product is a late stage product with a known process. • The CMO has regulatory experience and compliance. • The CMO is used as a back-up only. • The product will be sold in Asia. • The product is an early stage product. • The CMO’s prices are 25% to 40% lower. • The CMO’s prices are 1/5th to 1/10th the price in the U.S. • The cost benefit outweighs the risks. • It would be possible to build expertise before production. • It is a small, well-defined project. • The CMO can provide a high yield expression system. • The CMO has a high-quality operation. • An agent or third party would facilitate the relationship. • The CMO offers serious incentives. • The respondent company will grow with multiple products. • The CMO provides capacity and technical expertise that could not be found elsewhere. • The Asian facility is part of a large international CMO. • The CMO has been through PAI. |
No | 7% | • Too risky |
1) Biopharmaceutical contract manufacturing will become more competitive, especially as regards pricing and timelines.
2) Competitive pricing pressure is increasing as more contractors enter the market and established contractors build more capacity.
3) Contractors in lower-cost regions such as Singapore, India, and South Korea will have an impact on the industry.
As the biopharmaceutical contract manufacturing market matures, expansion into Asian markets and the use of contractors in Asia will provide pharmaceutical and biotechnology companies with the full gamut of biomanufacturing options.
Pharmaceutical and Biotechnology Companies Consider Asia
Although wary of outsourcing biologics production to Asia, most biomanufacturing directors at pharmaceutical and biotechnology companies surveyed for the new pricing study say they now might consider it under certain stringent conditions, to obtain price advantages and other benefits. More than 90% of the directors might consider outsourcing production to a contractor in Asia to obtain a price advantage if the CMO meets their requirements regarding experience, track record, IP protection, regulatory compliance and experience, and offers strong incentives. Regions such as Singapore and South Korea are the most likely Asian areas to attract this business first.
A listing of the requirements for outsourcing to Asia, as mentioned by respondents in the survey and in order by the frequency of these mentions, is shown in Table 1.
Below, we have a few insightful comments from the surveyed biomanufacturing directors. Specifically, these respondents were asked if they would use an unproven Asian contractor if it would lower the price of their production dramatically, and to describe what would attract them to an Asian supplier:
“Yes, we would consider it. The important thing would be the key players involved. If the contractor has reputable people with experience, we’d probably be willing to work with them. If the contractor company was a start-up with no one we recognize and with no regulatory experience in the U.S. and Europe, we’d be suspicious.”
—Pharmaceutical/Biotechnology Company
“The problem is travel and the contractor not being ready. They would have to have the facility up and running and we would have to audit them for compliance with GMP requirements. They would need experienced people: U.S. people or Europeans. And they would have to give a substantial discount to get our business.”
—Pharmaceutical/Biotechnology Company
“We’ve been thinking about it. They’d need the right people—people with experience from known CMOs in our industry. The cost will matter in some products.”
—Pharmaceutical/Biotechnology Company
“We would consider using an unproven Asian CMO on a price-per-gram basis, but not for early development. There are some attractive CMOs in Singapore and Malaysia. We would not work with CMOs in China or India because there is no IP protection.”
—Pharmaceutical/Biotechnology Company
“For us, it would be negotiable. We would have to do an in-depth audit. If there is a big cost advantage and we believe they are in good shape, we would consider going to an unproven Asian supplier. We feel that we have enough in-house experience that we could guide the manufacturing of an unproven Asian CMO. However, I don’t think that high-quality Asian suppliers are going to be less expensive. We would not go to India or China because they don’t recognize our patents and we would be concerned about sharing our trade secrets. We would consider South Korea or Singapore.”
—Pharmaceutical/Biotechnology Company
Benefits and Drawbacks of Outsourcing To Contractors in Asia
In our industry survey of the biopharmaceutical contract manufacturing market, 51 directors of biomanufacturing were interviewed and asked to explain any plans they have for using contractors in other regions, their decision factors, and specifically, if they have any plans to use contractors in Singapore, China, or India.
Several directors are considering Singapore, but they are reluctant to consider India or China. Most respondents with experience in Asia mentioned that Singapore is a very different region than India or China, based on technology, IP protection, and tax break comparisons. Although outsourcing to Singapore is a strong possibility in the near future for a few respondents, most believe outsourcing biopharmaceutical production to India or China is five or more years away.
Table 2: Opinions Regarding the Benefits and Drawbacks of Outsourcing to Contractors in Asia | |
Drivers | |
Benefits expected by those interested in outsourcing to contractors in Asia | • Lower costs, better prices • Tax breaks in Singapore • Good quality • Available capacity if a capacity crunch exists |
Concerns | |
Drawbacks to outsourcing in this region |
• Long distance: travel and communications are difficult owing to geographic distance and time differences • Proven capability: a record of cGMP production and FDA approvals is needed • IP protection: the perception of little or no IP protection in India or China is prevalent. • Technology skills: expertise and ease of technology transfer need to be shown. • Risk: quality and regulatory issues are paramount. • Language barriers make project coordination difficult. • The cost effectiveness of outsourcing to Asia is questionable. |
A few selected comments from the biomanufacturing directors surveyed follow:
“We are actively exploring these options. We have been contacted by CMOs in Singapore and India. Our decision factors are GMP compliance, flexibility, and price. The distance of these countries makes it more difficult to be flexible.”
—Pharmaceutical/Biotechnology Company
“I can’t think of a reason to exclude CMOs just because they are out of the region. I have worked with contractors in other regions. There can be difficulties with raw material suppliers and regulatory affairs issues. It adds a layer of complexity. For large-volume products, cost is a driver. There will be a motivation to go to countries where there are low labor costs.”
—Pharmaceutical/Biotechnology Company
“Our CEO is discussing using contractors in Asia now. Distance makes little difference, but a very long distance is a problem, and we would want a ‘person in the plant.’ The real issue is whether they could manufacture to pass FDA inspections with good quality and compliance.”
—Pharmaceutical/Biotechnology Company
“We would definitely consider using contractors in other regions such as Singapore, China, or India. At present we only contract within the U.S.”
—Pharmaceutical/Biotechnology Company
“We would be open to using contractors in other regions for monoclonal antibodies. It will happen for biologics, but it’s a matter of when. I think by 2015 we will be using a CMO in Asia or have our own plant in China or India.”
—Pharmaceutical/Biotechnology Company
“I worked in Singapore, so I would definitely use contractors there and we do so already for small molecules. India and China have an issue with intellectual property. For innovative things like biotech and mammalian cell culture, we would have a lot of hesitation to move there at the moment.”
—Pharmaceutical/Biotechnology Company
“I think there is a lot of potential. We would, and have, considered manufacturing in one or more of these regions. For us to feel comfortable about manufacturing in Singapore, China, or India, the contractor there would have to have a record of cGMP production that is fully traceable and documented. This has been spotty in the past. We have learned to be careful. If you get involved with inexperienced CMOs, you end up doing a lot of hand-holding and you spend a lot of extra time. Drug counterfeiting is another concern we have when considering manufacturing in China. We would want to make sure we could safeguard our supply chain and products. We would want to make sure none of it is going out the back door or is being counterfeited.”
—Pharmaceutical/Biotechnology Company
Contractors Reluctant To Consider Asia
The 16 biopharmaceutical contractors surveyed in the new 2006 pricing study were asked to explain if they would consider manufacturing in Asia to reduce costs. Most of the contractors are not interested in manufacturing in Asia, primarily because of concerns with distance, communications, IP and regula-tory compliance. In addition, contractors say they have enough capacity and the amount of money saved by going to Asia is questionable. However, the contractors are concerned about competition from CMOs in low-cost Asian regions. India and South Korea are two of the countries most CMOs believe will be the first to offer significant competition.
The few CMOs already working in Asia or planning to work in Asia say that manufacturing there provides clients with an important reduction in project costs. Selected comments from contractors participating in the survey follow, categorized by their intentions of expanding into Asia.
A Few Contractors Are Interested in Manufacturing in Asia (13%)
“We certainly are looking at contractors in Asia right now. If we did buy a company in Asia, it would not be for process development, but for a very steady well-developed process where our clients needed a reduction in cost.”
—Contract Manufacturer
“The cost of goods, when doing production in India, is about 10% of the cost of production in the U.S. South Korea also seems to be an essential player. We will subcontract some of our projects to India. We want to maintain the same quality that we provide in our own facility, so we will have to determine which projects will be best suited for manufacturing in India. This is not going to happen tomorrow, but we are looking into this and developing our business plan.”
—Contract Manufacturer
Most Contractors Are Not Interested in Manufacturing in Asia (87%)
“I would not go to Asia. There are communication and distance issues. Also, this is not as labor intensive as other industries. You still have to buy the same equipment and raw materials. You may not save that much money by going to Asia. Plus, the regulatory compliance of the plant is important.”
—Contract Manufacturer
“No, we are not planning to be in Asia at this time.
There is no control over many issues such as intellectual property, security, and time management of personnel. Another major problem would be communication. The inability to communicate accurate information can lead to costly mistakes.”
—Contract Manufacturer
“We would not consider it at the moment. However, we are aware of the building and progression of manufacturing facilities in Asia and India. The major problem we see is distance, as well as FDA and other regulatory issues.”
—Contract Manufacturer
“No, there are too many regulatory and intellectual properties issues.”
—Contract Manufacturer
“We may be forced to consider Asia, but many people are concerned about the resources required for developing a product so far away. We believe that a tremendous amount of resources and personnel would be required for us to deal with projects so far away.”
—Contract Manufacturer
Biopharmaceutical Contract Manufacturing: The Future Includes Asia
In the conclusion of the interview survey, both the contractors and the biomanufacturing directors at pharmaceutical and biotechnology companies were asked their opinions about the future of the industry. For both groups, outsourcing to Asia is an important trend, which will have a significant impact on the industry in the next five to 10 years. A CMO respondent summed up the majority opinion:
“Up until recently it was not a big factor, but now competition from developing regions cannot be ignored. This will have an impact on North American and European contract manufacturing organizations. The nature of the impact really depends on (1) the acceptance of the Asian market, (2) if the contractors there can meet strict quality standards, and (3) if it is possible to effectively manage projects in those countries. Within the next five years, I think this will have a significant impact on the CMO business.”
—Contract Manufacturer
As the industry becomes more price-competitive, the possibility of outsourcing certain projects to lower-cost Asian regions, especially production of large-volume products, will become a valuable alternative. The biopharmaceutical contract manufacturing industry is growing into a truly global business.