What Beer Can Teach Us About Outsourcing

By Louis Garguilo, Chief Editor, Outsourced Pharma

I’m not a biologist or chemist, but apply these disciplines to beer and my interest is immediately piqued. Mix in a discussion of outsourcing – contract brewing, if you will – and we add a dose of professional relevance as well. Yes, this article is related to the pharma industry, so stay with me here if the beer reference didn't wet your thirst.

First, though, an anecdote about the beer. It starts years ago when the production of my favorite brew was outsourced abroad to serve international markets. The taste never matched up to the original, as confirmed by aficionados of this brand around the world. I was recently reminded of this situation while reading a review in the Wall Street Journal of the new book The Craft Beer Revolution by Steve Hindy. For one thing, it appears outsourcing in the microbrew industry – the biotechs of beer – is being questioned. Would a microbrew from, for example, Brooklyn Brewery, be less than honest with its customers if they outsourced production far from the five boroughs?

Moreover, what of the global beverage conglomerates – the big pharmas of this industry? They have been outsourcing internationally as a necessity of distribution and overall business considerations for years. Although not in my particular case, for the most part customers seem to have been served well by this strategy. And if consumers are concerned about where the beer they purchase is brewed, it is usually right there on the bottle or can for them to see: “Brewed and distributed for ABC brewery under supervision by DEF brewery in GHI country.”

Where does her Ibuprofen come from?

Perhaps you sense where I am going here. Does it matter to the European or U.S. healthcare consumer where her brand of ibuprofen is produced and formulated? If she buys Advil from Pfizer, would she expect it is made in China, for example? Or if it is a generic form purchased from a drug store like CVS Caremark, will it matter if it is supplied out of India by Shasun Chemicals & Drugs, one of the largest producers of Ibuprofen throughout the world? Or by Teva Pharmaceuticals or Watson Pharmaceuticals? If it does matter to the consumer, how should the industry inform her?

 This question can only grow with the increasing realization by the healthcare consumer of the sheer volume of outsourcing going on in our industry, and more scrutiny on generics particularly.

Actually, this was brought up in conversations that Outsourced Pharma had recently while soliciting discussion topics from members of the pharma industry for a new conference we will be hosting in San Francisco in November, called Outsourced Pharma West. (More on this conference in the future.)

We believe this is more than a subject of labeling or consumer advocacy, but of pushing outsourcing, and particularly the manufacturing of common medicines, into the full light of day. In fact already there is more industry transparency as sponsor-provider outsourcing relationships advance, particularly on the discovery side. Press releases, some of which we report on in depth here at Outsourced Pharma, come more often and provide more details than in the past. However, with the shifting CMO landscape, some industry players are starting to discuss if more should be done sooner.   

The Landscape for Manufacturing

Regarding that landscape, perhaps most would agree with the well put analysis from CMS Pharma, an independent corporate strategy and operations advisor to the pharmaceutical and CMO industries. They say that “the pharmaceutical CMO business is in its late stage of commoditization with increased pressure from pharmaceutical companies and competition coming from India. The first half of the 2000-2010 decade has seen India establish itself as the de-facto worldwide API powerhouse for generics. The second half of the decade has seen India make forays as an alternative supplier for advanced API services. As this trend continues over the next five years, the impact on the business models for Western CMOs will become acute.”

CMS Pharma and others also see these India-based CRAMS and pharma companies acquiring Western assets held by big pharma. Perhaps a better business model, though, envisions India-based CRAMS moving to acquisitions of smaller and mid-sized Western CMOs, as well as the continuation of the West looking for production opportunities in India.

As an example of this, already this year we saw Actavis, headquartered in Dublin and one of the world’s largest generic drug manufacturers, divest its commercial generics operations in seven western European countries to India’s Aurobindo Pharma.

Positive Market Dynamics With the Need to Inform

As mentioned at the beginning of this column, for the most part – with beer and with pharmaceuticals – we are talking about pure free-market dynamics and the workings of an efficient global economy that will benefit imbibers and healthcare consumers around the world. And as mentioned in prior columns, it is hard to find an industry more globally attuned, entwined and active as the pharmaceutical outsourcing industry. The landscape my change, but it is the global terrain in its entirety involved in the shifting, and all data and analysis points to an increase in outsourced manufacturing of drugs of all kinds.

The trending topic of discussion and hypothetical question, then, and one related to the recent highly publicized news about various quality challenges in India and elsewhere, is this: Should Ms. Jones in the London suburb of Notting Hill somehow be informed if the manufacturing facility making her generic in Europe is owned and operated by an Indian generics manufacturer who has had recent quality challenges? Chances are increasing that she is going to want to be.

Certainly a topic worthy of more discussion some night over a couple of pints.