From The Editor | October 2, 2018

Outsourcing On The Cheap To China?

Louis Garguilo

By Louis Garguilo, Chief Editor, Outsourced Pharma
Follow Me On Twitter @Louis_Garguilo

Outsourcing On The Cheap To China?

I’ve been reaching out to U.S. biopharma companies for answers to this prime question, one elevating in importance among the general public:

“Why does your organization outsource so much drug development and manufacturing to China?”

No, there’s not an implicit naivety in the question. If it does elicit a curt reply, such as “Because it’s cheaper to do it there than here,” that would still be telling; we need to hear it said clearly. Patients and consumers in the U.S. would then need to deal directly with that response.

They’d need to deal with it most specifically because today that question begets a more specific question: “Does this outsourcing impact patient safety?” Unfortunately, the answer to that, according to so much recent news of quality issues out of China, is yes, in fact it does.

I can report we have started to gather fuller replies. They come from the very professionals tasked specifically with auditing and selecting global CDMOs for their biopharma organizations. Some comments have been made publically – such as at Outsourced Pharma conferences. Others have been made confidentially. Those who have replied work at Big Pharma, as well as small biotechs.

I’m prompted now to provide the responses we have to date, partly by comments tucked into President Trump’s announcement yesterday (October 1st) of the new US-Mexico-Canada trade deal, known as USMCA:

“We also provide brand-new intellectual property protections for biologic drugs, which will make North America a haven for medical innovation and development. We want our drugs to be made here. When you talk prescription drugs, we don't like getting them from foreign countries. We don't know what's happening with those drugs, how they're being made. Too important.

And so we – the drug development and manufacturing outsourcing industry – continue to move front-and-center.

We Aren’t There All That Much

The majority of what supply-chain experts in the West have to say tends to be twofold: First, we actually don’t like outsourcing to Asia Pacific, especially China, if we can avoid it. Second, we are abundantly cautious and restrictively selective when we do elect to contract drug manufacturing there.

The impression given is that there is less outsourcing to China than many suspect. Of course one just needs to read a book like “China Rx” to find this hard to believe. Or just witness the growth of China-based CDMOs. Perhaps the bifurcation in perspective can be somewhat attributed to the outsourcing for new innovative drugs versus that for the bulk manufacturing of biosimilars, older medicines, supplements and vitamins.

Nonetheless, here’s a typical statement from a member of Big Pharma with firsthand experience of the situation:

“When it comes to China, we are only willing to work with the most top-tier CMOs, until that time when we see proven capability uplift in others there.”

Other experienced outsourcers express this more specifically:

“They’re a Communist country, they’re very political and corrupt, so you have to be careful with China. It’s not an even playing field there … They’re coming into the world environment, and that’s fine. But it doesn’t necessarily mean they will follow international norms yet. You just have to be wary of their business practices, is our experience.”

Still, that statement, as direct – and appreciated – as it is, doesn’t get to the reason for being there. So let’s get to the cost factor –  and let’s not equivocate, the cheapness factor; it isn’t always swept under the rug. From another Big Pharma executive:

“You can outsource to China. You just have to be more careful; you’re not as supported by the regulatory structure. That structure is weaker. But you can have an excellent facility in a weakly supported country. And there’s an immense cost savings in those parts of the world. I mean, there are reasons why we do business there. It has historically been something in the range of ten cents on the dollar in terms of labor costs. It’s just you have to be much more aware of the CDMO you’re working with, as well as the country itself. I think individual Big Pharma companies are in fact struggling with this. You just don’t want to say you can’t do it, either. I mean, it feels like you have to find a way to do it.”

Why?

Cheap The Champion Of U.S. Patients?

We – consumers and patients – have been at least partly to blame for the situation: We seem to purchase our medicines based on price rather than quality. Cheap appears to only be a concern when it also means inferior quality.

Unfortunately, today it appears to mean just that, placing biopharma companies and consumer alike, in a new – and uncomfortable – light. Moreover, as we’ve covered in these pages, quality is not the only concern when cheap leads us to China for our drug supplies. Now there are perceived threats to national security and the entire supply chain.

But let’s stay with cheap for now. (By the way, for those more broadly interested in this subject of “cheap” and its consequences on consumers, read “Cheap – The High Cost of Discount Culture,” by Ellen Ruppel Shell.)

I can’t think of an industry more scrutinized when pricing its products. That’s obviously  because of the importance of medicines to our society and individual lives. Therefore, when biopharma organizations can reduce prices via outsourcing, then external supply chains are champions of the consumer, aren’t they?

We believe emphatically at Outsourced Pharma that should be the case. And we have never been on the side that says biopharma prices should be regulated, or our health-care a managed government system (versus an independent market). We in fact, have sided with biopharma on pricing for the most part.

Take for example, when a new hepatitis C medicine became available that cures a patient of the disease. Is it worth ~$85,000 to that patient, and in fact our entire health-care apparatus that would otherwise have to spend millions of dollars on that patient? Is it worth it to that pharma company to spend the money to develop the drug if it can’t set a profitable price?

Furthermore, without a manufacturing outsourcing strategy, it’s doubtful some of these drugs would ever get to market, and many that have would be much more expensive. To the best of my knowledge, the production of a substantial amount of those Hep-C drugs are outsourced to CDMOs in the United States. And that decision appears to be one based on quality, safety and supply reliability, and less on cost.

Obviously our idea of cheap medicines has to be reset … on all sides. Maybe it’s natural that China would play a key role in the discussion.