Being located next door to one’s contract service provider used to be a practical necessity. But over the past 10 years that’s changed, and today virtually no biopharmaceutical manufacturing client considers the geographic proximity of their contract manufacturing organization (CMO) to be a very important factor in their selection process. Specifically, less than 2% of clients surveyed for BioPlan Associates’ 12th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production cited this as a critical factor, down from double-digit percentages a decade ago. Indeed, of the 19 selection criteria that we’ve measured over the past decade, a CMO’s proximity has seen the second-largest negative swing in importance. 

Take that in combination with the greater degree of outsourcing that we’ve witnessed over the years, and the implications are clear: CMOs all over the world are more in competition than ever to win same lucrative contracts. Certainly, companies may well prefer to do business with CMOs that are in the same country or region (locality, after all, means different things to different people), for the cultural comfort of doing so if nothing else. But as this industry has matured, biomanufacturing has undergone the same transformations as generally seen in the world economy: More clients have the experience and sophistication to manage their offshore suppliers. In addition, some clients view their CMOs international regulatory expertise as supporting international marketing opportunities.

As the industry becomes increasingly global, it’s intriguing to see how the rankings of favored offshoring countries evolve over time. These rankings may be influenced by experiences, press reports, specific CMOs or other factors, but they nonetheless offer an overarching indication of how well certain countries are expected to fare in drawing foreign contracts.

Top Destinations for International Outsourcing
This year traditional powerhouses reign again in the overall rankings of possible destinations. When we asked qualified industry respondents to identify where they would consider outsourcing production outside of their own country over the next five years, we found that the US and Germany tied at the top of the list, each cited by more than one-quarter (26.5%) of the industry. For Germany this caps a strong increase from 16% citing the prior 2 years, while for the US it marks another year at the top. The US has a strong reputation as a global biomanufacturing hub, accounting more than one-third of global biomanufacturing facility capacity, according to our analyses of the top facilities worldwide.

Behind the US and Germany but well atop the list of BRIC countries was China, indicated to be a possible destination by 22% of industry respondents, a figure that puts it slightly behind last year’s tally of 24% but still up from 10.6% the year before. (Brazil and India, meanwhile, were fairly tightly bunched at around 10% of respondents). Following China was the UK (17.6%) and then Singapore and Switzerland.

Possible Destination? Differences Abound Across the Atlantic
Our study includes a global sample from 28 countries, and while the geographic distribution has remained relatively steady over the years, that distribution can affect the overall rankings, given that this specifically measures off-shoring destinations.
As a result, we also break out our respondents by respondent region, honing in on US-based and Western European companies. It was in these breakouts that we saw some of the larger swings in country perceptions this year.

Among US-based client companies, for example, fully half cited Germany as a possible international outsourcing destination. That marks a substantial uptick from 36% last year, but continues a trend that has seen an increase each year since 2011, when fewer than one-quarter (22%) saw Germany as a potential destination. Germany’s popularity is most likely fueled by the presence of world-class CMOs and facilities. For example, two German facilities—Boehringer Ingeleheim’s Biberach biomanufacturing facility and Hoffmann-La Roche’s Penzberg biomanufacturing facility—rank among the top 10 worldwide facilities on our Wiki site (top1000bio.com), which ranks the top 1000 biomanufacturing facilities worldwide using a proprietary weighted scale. No other country besides the US and Germany place a facility in our top 10.

Last year’s top potential destination among US-based client companies, Singapore, was cited again by 38.6% of respondents, good for the second position. It was ahead of China (34.1%, up from 25%), Ireland (29.5%, up from 27.3%) and the UK (27.3%, up from 22.7%).

Among respondents based in Western Europe there was no such consensus. A group of countries—the US, China, Germany, the UK, Brazil and Austria—all carried equal weight among respondents as possible destinations, a surprising result to be sure. What the multi-year trend does show, however, is a growing preference for both Germany and the UK. European companies, it seems, are happy enough to offshore within the same region.

To get a better sense of how these perceptions might materialize into future business, we also asked respondents from both regions to identify the countries where there was a “strong likelihood” or a “likelihood” that they would outsource production over the next 5 years. In essence, we’re looking at more positive indications of outsourcing activity than merely consideration.

Under this scale, the UK and the US both performed well. Each was indicated as a likely destination by more than one-third of European respondents (36.4%), and each appears to be growing in favor over previous years. This again indicates that emerging markets take a backseat to traditional hubs among Europeans. Indeed, there was less positivity to outsourcing to countries like China and Russia, and India and Brazil did not even register.

When we ran the same test of likelihood by US-based companies, we saw that Asian markets hold considerable appeal. China (25%), Singapore (18.1%), and Korea (15.9%) all placed in the top 5 destinations. India (11.3%) also wasn’t far behind, though its appeal as an outsourcing destination seems to have waned in recent years.

Germany again led the rankings among US companies, though, with 27.3% indicating at least a likelihood that they would outsource production there in the next 5 years. This represents the highest level of positive interest in Germany in at least 7 years, up from a previous high of 19.4% in 2013. The country may be boosted by not only housing a large CMO such as Boehringer Ingelheim, which has achieved licensing for manufacture of marketed biologics, but also mid-tier CMOs such as Rentschler, which has recently been expanding. Smaller-scale European CMOs also tend to be clustered in these regions, as well as in Switzerland and the Netherlands.

The greatest percentage of European client companies (36.4%) targeted the UK as their preference as a Likelihood, or Strong Likelihood outsourced capacity destination, Following were the US, Austria, and the Netherlands.  That Germany fell low on this list may be due to the relatively large percentage of European respondents coming from that country. 

Process Development Offshoring Projections Lose Steam
It’s important to note that while off-shoring may be more common now than it was, industry attitudes take divergent paths when we measure different types of activities in consideration for outsourcing.

For example, among all respondents, the enthusiasm for offshoring is greatest for clinical trials and operations, as 58% of respondents see this as being in their future to some degree over the next 5 years. This number has been steady over the past couple of years but has grown substantially from earlier this decade.

By comparison, fewer industry respondents—43.2% in sum—expect to offshore at least some of their biomanufacturing operations over the next 5 years. That figure is down slightly from last year’s 47%, but still exhibits an overall growth trend since 2011.

In contrast to those examples, though, stands process development (PD). Over the years, we’ve witnessed a gradual decline in the proportion of industry respondents who expect to offshore process development operations. This appears to increasingly seen as a core operation, important to the business interests of biomanufacturers. Now, just over 3 in 10 (30.9%) predict that they will outsource PD over the next 5 years, down significantly from 2012 where 46.4% planned on outsourcing PD.  This is surprising in light of the fact that these same decision makers plan to increase their PD budgets by 5.3% on average this year; second only to the estimated increase in new capital equipment spending (6.3%). 

Outsourcing vs Offshoring Process Development
This increase in budgets, and decrease in off-shoring of high-value activities like PD, suggests that these activities are either being kept in-house, with companies preferring to increase their spending to meet their needs, or that they are considering outsourcing them domestically. In this case, enthusiasm for outsourcing process development may still exist, but not necessarily for offshoring it.
Here’s the distinction. Our study shows that when it comes to hiring challenges, no position comes close to pains that facilities are experiencing when hiring process development staff. When we surveyed the industry on the job positions their facilities are currently finding difficult to fill, upstream and downstream process development staff emerged as the top responses by a wide margin (39% and 37%, respectively). Well ahead of quality assurance and process engineers, for example. Faced with this backdrop, we also observed a jump this year in the percentage of respondents who claimed to have outsourced jobs in process development in order to cut costs, growing to 17.3% from around 12% during the previous 4 years. So more companies are outsourcing process development jobs, presumably at least partly due to hiring difficulties (and associated cost savings from outsourcing).

More companies are also outsourcing process development operations. In our study’s chapter on outsourcing, the data reveal that 43.2% of respondents are outsourcing at least some upstream process development, more than double the proportion doing so in 2010 (17.1%). Likewise, 41.1% reported outsourcing downstream process development, representing almost twice the share from 2010 (22.1%). And when we asked the industry what they wanted their suppliers to focus their development efforts on most, upstream and downstream process development services were the most frequently cited service areas.

What may be occurring is a more gradual evolution in outsourcing of this particular activity, which remains among the lesser-outsourced ones of the many we test. As such, more companies may be starting to outsource process development, but not display as much comfort in offshoring these sensitive operations. And while an apparent shortage of skilled process development staff may soon cause biomanufacturers to look overseas, for now this shortage may be pushing them to value these activities even more highly and therefore consider them too much of a core activity to outsource internationally.

Conclusion
While process development activities may be staying close to home for now, it appears that offshoring of many aspects of biopharmaceuticals, including biomanufacturing, continue to expand, in part, due to cost factors. In fact, nearly 15% of biomanufacturers this year reported having outsourced manufacturing to non-domestic service providers specifically to reduce costs. Following the general trend, this was the 4th consecutive year of growth on this measure.

For now, it appears that Western European companies are most comfortable offshoring to the US or countries within their own region, where numerous experienced CMOs are located. But the race for contracts appears to be far less lopsided, and while Germany is ahead for the time being, countries in the Asia-Pacific region are well and truly in the mix.

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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

References

1. 12th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, BioPlan Associates, Inc. Rockville, MD., April 2015.
2. BioPlanAssociates,Top1000Global Biopharmaceutical Facilities Index, www. top1000bio.com, accessed July 29, 2015.