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Courting Controversy - Part II

By Joanna Cosgrove | April 23, 2008

AstraZeneca continues to send mixed messages about its long-term API sourcing strategy

Courting Controversy - Part II

AstraZeneca continues to send mixed messages about its long-term API sourcing strategy

By Joanna Cosgrove

Last September, AstraZeneca found itself in the midst of a public relations maelstrom after David Smith, the company's executive vice president of operations, remarked to The London Times that the pharmaceutical giant planned to confer the manufacture of its active pharmaceutical ingredients (APIs) as well as "more sophisticated manufacturing and logistics activities" to contract manufacturers in China and India. His quotes were partially quelled by an AZ spokesperson who said the company was merely "exploring" the possibility that "operations will continue to source activities in-house that are critical to keeping connected with the patient and essential to ensuring patient safety supply and manufacturing."

In the seven months that have passed, it would seem that AZ has indeed been considering those API outsourcing options, albeit more quietly and certainly more privately. The matter that most recently brought the company's long-term intentions to light was its much publicized patent infringement litigation settlement with Ranbaxy Laboratories Ltd. over the drug Nexium.

The terms of the settlement entitle Ranbaxy, which sparked the litigation after submitting an Abbreviated New Drug Application to the FDA for a generic version of Nexium, to begin selling a generic version of that drug under a license from AstraZeneca on May 27, 2014 (the date on which AZ's patents protecting Nexium expire).

More notably though, the two companies also entered into agreements under which Ranbaxy will formulate a portion of AZ's U.S. supply of Nexium from May 2010, including provisions for the manufacture of esomeprazole magnesium, Nexium's API, beginning in May 2009.

But most interestingly, with regard to the AZ's long-term manufacturing intentions, the most revealing details were delivered via a conference call interview given by AZ's chief executive officer, David Brennan (and which was subsequently published by Reuters). Although the interview seemed to initially pertain to the litigation settlement, Mr. Brennan revealed that AZ indeed plans to outsource all of its API manufacturing within the next decade -- exactly the time frame Mr. Smith gave to The Times.

Mr. Brennan was quoted as saying "This move is absolutely consistent with our supply chain strategy…we have been looking to outsource our manufacturing where we can ... we have long-term plans to exit all API production over the next five to 10 years."

Contract Pharma contacted AZ's Cheshire, UK, press office with a request to clarify the ongoing outsourcing timeframe confusion, but their reply was less than clear. The company's Joan Pitt, head of communications responded, "We have now stated our intent to outsource API manufacture over the next five to ten years. So there is no change in what we said in the September statement [the rebuttal to The Times article]. Please note this [the Nexium API] is only API manufacture NOT all manufacture. As noted . . . the full outsource of supply and manufacturing activities is not part of the AZ strategy."

But other reports also point to AZ as moving toward being a research and branding-only entity. As far back as last July, AZ's Steve Fishwick, director of Asia outsourcing, and Marc Jones, vice president of global external sourcing, told Chemical & Engineering News that in three to five years, AZ would cease launching new APIs from its own facilities, instead relying on "chemical production partners in China and India."

In addition, the magazine reported that Mr. Fishwick said AZ planned to make significant investments in China by 2010 -- upwards of $100 million, which is equal to four times its 2006 spending there -- to purchase "non-manufactured products and services," although he later admitted the company was also on the lookout for "anything that AstraZeneca feels we could source from those areas," which included raw materials, contract research to packaging and information technology.

The company's ongoing strategy shift was evidenced by a February story in the UK paper, The Guardian, which cited the company's drug woes following the three late-stage failures last year. The failures seemed to compel the company to step up its pipeline fortification strategy which, since December 2005, has amounted to some 12 deals comprising three acquisitions and nine research collaborations.

The Guardian also reported that AZ had planned to trim 3,000 jobs in manufacturing – perhaps an early phase drop in the bucket in comparison to the longer-term numbers reported by The Times last September: 7,600 jobs in manufacturing and supply chain operations would be whittled away, a number that doesn't include the cuts alluded to by Mr. Smith.

There was also the subsequent opening of a sourcing center near Shanghai, which complements an existing office in Bangalore, India, from which AZ already purchases APIs. "Both countries are strong. If anything, India has had a longer history of API production, but China is coming along fast," Mr. Fishwick told the C&E News reporter.

The bottom line is that AZ isn't the first major pharmaceutical company to shuttle its API manufacturing endeavors to India and China, the direction it seems AZ is ultimately headed in. But the conflicting messages delivered to media outlets are certainly making industry watchers scratch their collective heads.

Joanna Cosgrove is the Online Editor at Contract Pharma.

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