Japan's Global Lessons In Outsourcing

By Louis Garguilo, Chief Editor, Outsourced Pharma

I (too often) retell a first experience – now decades old – as a business development professional for a U.S.-based CDMO, as I tried to convince a Japanese pharma to outsource a project to us.

I was close, so I thought, to closing a hit-generating screening-library deal.

However, at yet another meeting in Tokyo, my counterpart said before making a final decision, he was off to visit dozens (!) of my competitors, mostly scattered throughout Eastern and Western Europe.

In those days, outsourcing outside of Japan was deemed irrationally risky. This company had made the decision to give it a try, though, and they were not going to leave any rocks unturned in the process.

I was again reminded of this experience during a recent three-week stay in Tokyo. I wondered  about the progression of Japan Pharma (and Bio) outsourcing, and the status today.

I believe it’ll be instructive if you take this historic look with me.

A Delayed Start

Drug development and manufacturing outsourcing by the Japanese (particularly offshore outsourcing) can be appreciably traced to the late 20th century.  

The Japanese had methodically (if not still modestly) built up their own capabilities, including labs and production facilities, and acquired expertise in various areas.

For the most part, their markets and initiatives were domestically focused. External collaborations were limited to Japanese academic institutions. (These relationships, admirably, remain close today.)

However, by the early 2000s, the industry began to recognize the potential benefits of outsourcing. Japan Pharma had come to realize they were getting left behind in the growing global markets, and the domestic market alone was insufficient; they needed to compete around the world if they were to grow, or indeed survive.

The industry started collaborating with CROs first. It took longer to accept that folks outside Japan could manufacture as effectively and efficiently – with the same quality standards – as they could internally.

Truth be told, this did prove to be difficult for many a CDMO. Eventually, though, Japan Inc. began outsourcing all components of the drug-making process.

Today, Takeda, Astellas, Daiichi-Sankyo, Eisai, and other Japan Pharma are well-known and influential, engaged in various strategic business partnerships, acquisitions of foreign biotechs, and have formed partnerships with CROs and CDMOs around the world.

Deal Flow

So what kind of development and manufacturing deals have the Japanese entered? While often specific projects (and even more involved deals) are not announced, we can ascertain that for the most part, Japan Pharma stays conservative in that they seem to prefer to work with bigger CDMOs. Here are three examples.

• Takeda has worked with Albany Molecular Research (now Curia; U.S.) on various projects, and formed a strategic partnership with Lonza (Switzerland) to accelerate its biologics pipeline, and leverage Lonza's expertise in process development, manufacturing, and regulatory support.
• Daiichi-Sankyo has collaborated with Thermo Fisher (U.S.) with a focus on outsourcing the manufacture of solid dosage forms, including tablets and capsules.
• Astellas has partnered with Catalent (U.S.) to support its cell and gene therapy programs, areas where the CDMO offers expertise.

There has been an increase in Japan Biotech deals as well, as the biotech industry in Japan – very slow to develop and still relatively small – have started to outsource. Interesting, and perhaps universally normative, an entry point overseas has again been with university professors and university-based research.

CDMOs On Home Turf

Compared with global outsourcing relationships, there have been domestic companies providing services to the drug sponsors in Japan for decades.

At another of my early-career meetings while working for a CDMO, this time taking place in Osaka, I found myself at a large table, literally surrounded by about 15 professionals working for a Japan pharmaceutical company I was trying to partner with.

During the meeting, a number of the scientists and engineers would say things to each other in heavy Osaka dialect they thought I could not understand, although I had told them I could. These (mostly older gentlemen) were obviously upset  the company was even considering outsourcing some of their projects, let alone to a service provider in the U.S.

At one point, a scientist gestured out the window and said, “We don’t need help. And if we did, I can just go down the street for any of these services like we always do.”

I have competition just down the street? I thought to myself dejectedly.

To add to the difficulty of being an off-shore CDMO in those days, I had not learned of another factor: For large-scale manufacturing, Japanese pharma companies actually worked with each other, providing capacity and shared expertise.

But back to CDMOs, The Japan CMO Association (JCMOA) was established in 2010 with 18 contract manufacturing organizations (CMO) to undertake “research aimed at promoting the further growth and expansion of Japan’s CMO industry and resolving issues facing the industry; formulating voluntary guidelines related to the ideal form, etc., of appropriate contract manufacturing with pharmaceutical companies; formulating countermeasures to risks involved in contract manufacturing operations; collaborating with pharmaceutical organizations and regulatory authorities; and providing opinions.”

And bringing us now to the present, according to a market analysis by Grand View Research, the CDMO market in Japan is estimated at $11.6 billion, and expected to grow annually at a ~6.7% rate through the rest of this decade.

So What’d We Learn?

Perhaps first is the fact that to fully join the global pharma community, and keep up with the pace and markets in the world, it was outsourcing as the vehicle.

But perhaps most important is we learned most of that prolonged pace to working with external partners was driven by a lack of trust in the abilities, quality, and work ethic found outside one’s own company (and country), as well as serious concerns over communication (mostly associated with language.)

Now decades later, just about every professional I speak to on behalf of Outsourced Pharma, no matter what part of the world they operate in or their experience level, still lists trust and communication as two of the most important factors for successful outsourcing.

Perhaps overdone in certain aspects, but we can see the major concerns the Japanese exhibited in the beginning of their outsourcing era were not misplaced.

How you work through the factors of trust and communication will continue to dictate to a large degree how and where you outsource, and perhaps the entire success of your organization.