Roughly 40% of the world’s biopharmaceutical manufacturing capacity exists outside of the traditional hubs of North America and Europe.1 As biomanufacturing increasingly takes on more seamless international dimensions, our annual industry study identifies the trends and directions decision-makers are taking related to their offshoring.

Results from BioPlan Associates’ 13th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production2 indicate that the biopharmaceutical manufacturing industry expects about 10% of its clinical trials/operations and close to that share (9.4%) of biomanufacturing operations to be off-shored internationally within the next 5 years to China, India or another lower-cost country. These are relatively high percentages, given other data from our report indicating that many core activities are retained in-house for strategic reasons. Further, management, regulatory, and intellectual property factors come into consideration when outsourcing internationally. The most heavily outsourced activity, both domestic and international, is fill-finish services, which sees only about one-third of total operations outsourced.

The figures are derived from a survey of 222 responsible individuals at biopharmaceutical manufacturers and contract manufacturing organizations (CMOs) in 28 countries. Although forecasts for off-shoring of process development activities to lower-cost countries aren’t quite as notable (4.5% share of all operations), that figure again is relatively high given the extent to which process development activities are typically kept in-house.

We also examine the share of biomanufacturers that expect to offshore these activities to at least some degree in the future. Among biotherapeutic developers, more than 6 in 10 (61.4%) expect to off-shore at least some of their clinical trials/operations to a lower-cost country within the coming 5 years, with half forecasting some off-shoring of biomanufacturing operations and 40% saying the same about process development for biomanufacturing. In other words, while the overall extent of the off-shoring may be fairly small, a large share of biotherapeutic developers expect to be engaging in some sort of off-shoring to a lower-cost country within the next 5 years.

In fact, many biotherapeutic developers already offshore specifically as a cost-cutting mechanism: this year, more than 1 in 5 developers we surveyed reported having outsourced manufacturing to non-domestic service providers during the prior 12 months to reduce overall costs.

Which countries are set to benefit?
A CMO’s nearby location is essentially an afterthought in the biotherapeutic developer’s selection process these days, taking a backseat to more pressing considerations such as the CMO’s handling of cross-contamination issues, compliance with quality standards, and other such factors. To wit, only around 1 in every 10 biotherapeutic developers say that a CMO being local to them is a “very important” (3.6%) or “important” (7.1%) attribute when considering outsourcing of biopharmaceutical manufacturing to a CMO. This is easily the least important of the 19 consideration factors we measured, as it has been for several years. For context, almost 9 in 10 consider a CMO’s compliance with quality standards to be an important attribute.

While a CMO’s location may not be of importance, a country’s regulations—along with several other factors such as its existing facility capacity—can play into its perception among biotherapeutic developers. To find out where the flow of offshoring might be going in the next 5 years, we asked the industry to identify from a long list of countries those to which their facility is likely to offshore over the next 5 years.

Keeping in mind that ours is a global survey, we found that the U.S. was the top-cited country destination, with almost one-third (30.4%) of respondents noting a “strong likelihood” (15.9%) or “likelihood” (14.5%) of outsourcing there in the next 5 years. Following the U.S. in likelihood as outsourcing destinations this year are China (24.6%), Belgium (14.5%) and Ireland (14.5%), with a group of countries—Germany, India, UK, and Switzerland—tying for the 5th spot. 

These results are interesting when compared to last year’s study. The U.S. remains the top destination “considered” for offshoring, but breaks its tie with Germany, which moves down this year to the joint 4th spot with Belgium, India and the UK. China has moved up a spot to the second position.

Moreover, when we narrow the analysis down to the countries to which respondents see a “strong likelihood” of outsourcing, China overtakes the U.S. for the top spot, with Ireland remaining in third.

Top international destinations for U.S. companies
It is potentially more instructive to look at the responses from companies in various regions to see how they compare in regards to capacity expansion for production.  Among U.S.-based companies, there is a clear winner this year: China. More than one-third (35.9%) of U.S.-based companies indicated that there was a ‘likelihood’ that they would outsource to China within the next 5 years, including more than one-quarter who see a strong likelihood of doing so. 

Ireland is also a strong performer in this year’s survey, as more than one-fifth of U.S. companies foresee a likelihood of outsourcing there in the next 5 years. Also in the mix for U.S. companies are Belgium, the UK, Korea and Switzerland, suggesting that traditional Western European countries remain preferred international destinations, but that Asian service providers are definitely on the radar screen.

These results also offer up some interesting comparisons to last year’s study. China, not surprisingly, has climbed the rankings, up from the second spot last year. The UK, Korea and Switzerland also retain their status as likely future destinations for U.S. companies, such that their positions have not budged considerably. Worth noting is that India—in 9th place this year—continues to fail to exhibit the same appeal to U.S. biomanufacturers as does China. Meanwhile, Germany and Singapore, last year’s first and third leading destinations for U.S. biomanufacturers, respectively, have tumbled significantly.

What about Western European companies?
The data for Western European respondents offer contrasts to the results seen in the U.S. This year’s figures indicate that the U.S. and Germany are tied at the top of the rankings for Western European companies’ off-shoring plans. Each country is considered a “strong likelihood” by one-third of European respondents. So while Germany may not be in the U.S.’ interests this year, it’s, not unexpectedly, a strong contender for Western European respondents. Belgium, a favored EU destination, is followed by India, the UK and Switzerland in the rankings, with each of these countries seen as likely destinations by one-quarter of Western European respondents. This indicates that India is higher on the list of likely destinations for Western European than U.S.-based companies, with the opposite true of China. 

Growth in outsourced bioprocessing as cost cutting tool
Over the past five years, since 2011, both domestic and international outsourcing have grown significantly as a cost-cutting method. This year, the percent of respondents indicating they were planning to offshore some bioprocessing activities more than tripled, to 18%, from 5.7% in 2011. This suggests a greater degree of confidence in the available international outsourcing partners. This growth is likely an indicator of the level of experience clients have gained over these years, as well as the confidence that clients have found in their potential internationally based partners. 

Where is the top talent located?
Outsourcing and offshoring is a function not only of capacity but, more importantly, of expertise and staff capable of handling complex projects. The selection of possible destinations for offshoring is highly influenced by decision-makers’ knowledge of the competence and facilities located in those destinations. Some of the world’s top facilities are located in the regions also noted as outsourcing destinations. Not surprisingly, the U.S. and Germany dominate the top facilities worldwide, with eight of the top 10 facilities located in the U.S. and the other two located in Germany. The top German facilities, based on our BioManufacturing Facility Index, which weights a series of variables including biomanufacturing related capacity and employees, as well as commercial- and clinical-scale biological products, are Boehringer Ingelheim’s Biberach Bio-Manufacturing Facility and Hofmann-La Roche’s Penzberg facility.

The highest-ranking facility in China is Beijing Tiantan Biological Products’ Tiantanbio Chaoyang Bio-Pharmaceutical Plant, while Genzyme’s biomanufacturing facility in Geel, Belgium is the top-ranking facility for that country.

Conclusion
There continues to be a growing appetite for offshoring. And not just for cost-cutting benefits. As the biopharma industry grows, and becomes increasingly international, the demand for the limited pool of talented staff gets higher.  We will cover this in future articles-but this year, over a third of biomanufacturers find it difficult to process development jobs, both up- and down-stream. And nearly that same percentage of facilities can’t hire enough engineers and operators. This problem has held steady, or grown, for over six years. So, as international destinations offer expertise and capacity for contract services, it will be the off-shore talent that is most in demand, rather than the ability to simply cut costs.
 
And that talent is increasingly showing up in developing regions, which, in turn, will stimulate more international outsourcing. But even now, developing countries are rapidly closing the wage and cost-gap, and competition with U.S. and EU service providers is increasingly being driven by experience, and competence in GMP operations, rather than simply low-cost.

The fact that China has surged to the top of the list of potential, or likely destinations, far outperforming India, may be an indication of the results of investments China has made in biotechnology, including in the country’s last few 5-year plans. Yet, for Western European respondents, India continues to be cited more frequently as a likely future destination for biopharma outsourcing. So, this remains a very fluid environment.

Our data have shown for the past decade that very few clients feel it is important that a CMO be local to them. So with up to a tenth of global manufacturing being potentially outsourced internationally within the next five years, we can expect that off-shoring will continue apace. 

References

1. BioPlanAssociates,Top1000Global Biopharmaceutical Facilities Index, www. top1000bio.com, accessed April 20, 2016.
2. 13th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, BioPlan Associates, Inc. Rockville, MD., April 2016.

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Eric S. Langer
BioPlan Associates

Eric S. Langer is president and managing partner at BioPlan Associates, Inc., a biotechnology and life sciences marketing research and publishing firm established in Rockville, MD in 1989. He is editor of numerous studies, including “Biopharmaceutical Technology in China,” “Advances in Large-scale Biopharmaceutical Manufacturing”, and many other industry reports.  elanger@bioplanassociates.com  301-921-5979.  www.bioplanassociates.com