It's A Regional Sale For Contract Research/Manufacturing

By Louis Garguilo, Chief Editor, Outsourced Pharma

During the last few weeks I had the opportunity to speak with three experienced and successful business development professionals in the pharmaceutical contract manufacturing arena. They asked to remain anonymous, so I will simply refer to them as Hu, Himani, and Henry. What I got from these discussions with three individuals from three different countries was contrasting views on outsourcing and the future direction of the contract research and manufacturing industry. You can look at these as different world views, or to put it more accurately, different regional views.

Hu is bullish on the growth of this industry in China. She feels certain that over the next few years, an incredible 80% of all outsourcing for preclinical drug discovery services (as well as manufacturing) would be to China. It’s not surprising that she expects growth in China, but some might be shocked by that number. Himani believes the Indian industry will continue to increase its share in the market, as it attempts to make sure China does not achieve that lofty goal. Henry, on the other hand, was just as confident of a turnaround for America, with large pharma and bio companies outsourcing back to U.S.-based operations. I am omitting the Europe-based industry from this article, but will cover the European market more in future columns.

I have worked for a CRO/CMO with service options in the U.S. and India, and competed for work aggressively with Chinese providers. In that capacity I have lived their points, often simultaneously, and have sometimes ended up competing against myself. 

In discussions like those above, price will often drive the conversation, with value and quality not far behind. Interestingly, and perhaps the biggest difference from recent market positioning, Hu finds herself defensive when talking about FTE rates (as opposed to yelling them from the rooftop). As we’ve all come to know by now, Indian pricing for the most part trumps Chinese pricing. As a result, Hu now finds herself chasing the value tail. "How much does a lack of basic infrastructure end up costing customers, in terms of travel times, distribution and import/export headaches, and just absolute traffic chaos?” she asks. After catching her breath, she then adds “And experience. China has been in drug discovery for a number of years now; besides our own experienced scientists, we also have the educated expats and the longer term relationships." 

I asked Hu how she feels vis-à-vis U.S. operations. "Our customers tell us there is no longer a difference on the bench, or in intellectual input or productivity," she says. Hu also emphasizes that all the talk of rising prices in China is self-serving and overblown. “Prices would have to treble to get to U.S. rates! That is not happening,” she states.

Himani knows on what side her bread gets buttered: In a competition with China, and nearly universally, India has the lowest pricing. The challenge for her is all the other Indian CROs she has to compete with. Sooner or later margins, and measurements of quality of life for bench scientists, need to improve. “When we look to penetrate lucrative markets like Japan, we must prove we have the highest standards,” she says. “Trust and reliability are key factors. Bad news at one Indian CRO/CMO can hurt us all.” To her advantage, Himani can point to noteworthy success stories, such as the deal between Takeda and Advinus. Strategic deals such as these will also combat Hu’s assertions about long-term relationships favoring China.

This brings us to Henry. At first he seemed relieved as he discussed customers coming back to the U.S. after leaving for lower cost environments. However, his energy level rose as the discussion progressed. “Some in the industry take for granted that pipelines are weak, that desirable end results don’t seem to be there, and that there are inherent and real difficulties that come from working in China and India,” he says. “But they should also keep in mind that the experience and knowhow for breakthroughs in drug discovery remain in the U.S. and key European countries.” I won’t rehash them here, but Henry was able to point to direct proof from a number of big pharma firms that are re-evaluating their global outsourcing strategies. That re-evaluation has the U.S. industry back in competition. Moreover, he pointed out the area of his multi-service company that has the highest sales and is performing the best in terms of margins: his firm’s U.S.-based contract manufacturing plant.

So we see here that pharmaceutical companies have three “regional” perspectives on outsourcing. These perspectives suggest pharma will start to see different marketing communications and public relations messaging strategies trying to win their outsourcing dollars in 2014. Expect the Chinese providers to broaden their pricing discussion and focus on positioning their brands as the established outsourcing industry players and as the more experienced providers. Pharma dove into China about a decade ago, and there were some growing pains along the way. But the CRO/CMO industry in China should now place itself in the forefront of thought leadership regarding the symbiotic relationship between pharma and outsourcing. Look for this maturation in message and results as a positive sign for this region. For India, the challenge remains a communications effort to better demonstrate why pharma should continue to increase outsourcing to that country as a whole. Look for a public relations putsch of more articles and media attention focused on increasing reliability and improving conditions there. Price is the advantage there for now, but that distinction will mean less and less to pharma if infrastructure and other issues are not seriously addressed and effectively communicated.

Finally, for the U.S.-based operations, expect marketing communications to support their business development professionals’ efforts to entice pharma to that market by better clarifying - and then proving in the lab and plant - that “you get what you pay for.” Here the value proposition must win out and be demonstrated to reverse what appeared to be a tidal wave heading away from the North American continent. After all, is China really more experienced and can India really compete on infrastructure?

About the author: Louis Garguilo, President, LG StrategicWay

Louis Garguilo studied public relations and journalism at Syracuse University (he also holds a Master’s degree in English), and has 25+ years of international experience in various business communications and development positions. Louis spent most of the ‘80s and ‘90s in Japan as an educator, author and communications consultant to organizations such as Osaka Medical Center for Cancer and Cardiovascular Diseases. He returned to the U.S. in the late ‘90s and worked for six years under the governor of New York in the state’s economic development agency as liaison to the biotechnology and pharmaceutical industry. Louis spent the past seven years in positions of increasing importance at a leading pharmaceutical contract research, development and manufacturing company, Albany Molecular Research, Inc. When he left AMRI the end of 2013, he was vice president for global business development and head of marketing communications, and had completed implementation of a highly successful strategic corporate rebranding. Louis currently heads a communications and public relations agency, LG StrategicWay (www.lgstrategicway.com).