Going back to the early '90's, I recall that pharmaceutical outsourcing to Asia traditionally was driven by cost factors. Within Pfizer, it was innovative leadership of Dr. Dilip Mehta, then heading Clinical Research at Groton, CT, who proposed the idea of performing certain clinical research activities in India. He also pioneered Pfizer's internal China Planning Committee (CPC) and India Planning Committee (IPC), which I had an opportunity to serve upon.
The advantage was not simply cost but also quicker recruitment of subjects/patients and ample availability of trained medical professionals, which allowed us to reach goals quicker. Also, the presence of IT, data management and statistical professionals made it a logical shift, in terms of gaining further efficiencies by working in Asia.
Over the years, the wider global economic balance has been slowly shifting from west to east, and with the growing importance of commercial growth of markets in Asia - especially in India and China, as the middle class has grown and has more buying power in those countries - being matched with increasing Asian pharmaceutical expertise across the value chain, cost is just one of a range of factors that companies now consider when taking outsourcing decisions in Asia.
However, during those early years, there were major discussions and debates over IP protection (IPP) and how we would go about mitigating risks. In particular, reverse-engineering drove the fear of IPP considerations.
Increasingly, we find that outsourcing decisions need to be informed by strategic as much as tactical considerations. Much of the historical impetus for manufacturing outsourcing comes from the economic development gap between Asia and developed territories, manifested in lower wages and other costs. On the other hand, the gap in regulatory standards between many Asian territories and the west has acted as a brake on R&D outsourcing. In the future, there is likely to be a closing of these gaps between east and west with a consequent impact on the cost-benefit of outsourcing different parts of the value chain. Also with the expiration of major product patents occurring in the next five years, many generic companies will be competing to get a piece of the pie generated by the blockbuster products.
IP & the Legal Landscape: More IP awareness
Intellectual property protection (IPP) has always been one of the primary requirements for outsourcing any patented drug manufacturing or drug R&D to any contract service provider in any territory. IPP in Asian territories had fallen short of western standards.
However, there has been very significant progress made by key Asian territories to enforce IPP and implement patent laws. Singapore has established a strong track record for IPP, while China and India have made significant progress in the field. In particular, India becoming a signatory of the WTO treaty earlier in this decade confirmed its obligations and assured the West that it is willing to play on the same level field.
IPP still has some ways to go in Asia but legislation concerning intellectual property rights (IPR) continues to be developed and significantly improved. We are seeing emergence of pharma R&D in India and China by companies like Nicholas Piramal, Zydus Cadila and some others. It may be possible that over the next decade, we could see the first NCEs emerging from India and China [see India Report on page 38 for more on India's prospects]. These events have led us to think that the IPP considerations have made positive shifts over the years when it comes to R&D or manufacturing outsourcing to Asia countries. Concerns and the perceived risk have lessened.
Other Factors To Consider: Labor & Other Overhead Costs of R&D
Sponsor pharma companies face the challenge of deciding how best to maximize value chain productivity and minimize costs. Second, they need to judge how to maximize the opportunity presented by booming pharmaceutical markets in Asia and the growth in Asian pharmaceutical expertise. Outsourcing offers answers to both these challenges; however, as we see from east/west divergence trends, the outsourcing landscape in Asia is complex. The regulatory landscape is uneven, and concerns about IPP are still being clarified and resolved in many territories. Moreover, cost advantage cannot always be taken as a given, as local labor markets converge with the increasingly globalized market for skilled professionals. Decisions on optimal locations for outsourcing entail difficult trade-offs.
Singapore, for example, has a level of IPP comparable with Western territories, but also has labor costs to match. China and India provide much lower labor costs and immense market growth and have been catching up with IPP and other regulatory issues. In addition to these overall location factors, sponsor companies need to carry out extensive scrutiny of potential outsourcing candidates. Absolute confidence in the reliability and quality of supply and service from the outsourced entity is a critical consideration for any pharmaceutical company considering outsourcing. Moreover, the choice of candidate and the type of outsourcing relationship needs to fit with the company's future ambition and strategy. The choice of outsourcing partner might be very different if, for example, the goal of outsourcing is to help accelerate a company's move to more flexible, modern manufacturing and use of more advanced process technology, compared with the goal of reducing costs on end of patent protected products.
Makarand (Mak) Jawadekar most recently served as Director, Portfolio Management and Performance at Pfizer Global R&D, until February 2010, when he opted for an early retirement after 28 years at Pfizer Inc. He currently serves on several companies' advisory boards and also consults withbio/pharmaceutical companies for global outreach in emerging market regions. He can be reached at email@example.com.