Big Pharma Insourcing replacing Asian suppliers as competition for western CMOs

22-Jun-2014 - Last updated on 23-Jun-2014 at 12:05 GMT

Hidden costs and quality issues have encouraged pharma to abandon China and India, but Western CMOs are now under threat from a return to in-house manufacture, says a procurement consultant

Pharma is turning its back on Indian and China as suppliers of low-cost active pharmaceutical ingredients (APIs), Managing Partner of Tamesis Pharma Roger Cassidy said at the Global Pharmaceutical Contract Manufacturing (GPCM) Conference last week, due to questionable quality issues and hidden supply costs.

“The sourcing of materials represents the greatest threat to the supply chain,” Cassidy told delegates, citing Indian and Chinese manufacturers were responsible for 43% of the approximately 300 regulatory actions issued by the US FDA and EMA in the past four years for GMP violations.

Furthermore, widely reported events such as the heparin scandal - where stock imported from China led to over 80 deaths in the US – and problems at a number of Ranbaxy plants have pushed quality to the forefront of Asian manufacture, he added, and such issues can lead to huge costs that begin to make the region less attractive.

However, it is not solely remediation and recalls that lead to question as to whether or not India and China are still cost-cutting economies as many firms do not factor in the hidden factory and supply chain costs, Cassidy said.

These include experimentation and process understanding, supplier training and tech transfer, process and product validation, as well as ongoing expenses from delayed and incomplete deliveries, IP violations and long-lead times, all contributing to the “total cost of ownership.”

Cassidy also debunked the myth of labour costs in China and India, and though he said the cost of an operator was much lower than the US ($6,000 in India, $4,500 in China compared to $55,000 in the US, according to 2010 statistics), he argued this was not so straightforward as not only is this gap closing but workforce efficiency in the West is generally much higher.

CMO opportunities?

Rather than being a boon for US and European-based CMOs, a return back West brings a new threat to outsourcing as Pharma may make use of their excess capacity and revert to in-house production.

Pfizer moved production of its steroid APIs back to its Kalamazoo, Michigan plant after three years using third parties in Taiwan, whilst GSK swapped India for Scotland with steroid APIs being made at its Montrose plant.

However, Cassidy continued, CMOs can take advantage of changing pharma pipelines to win back business. The “low-hanging fruits have all gone,” he said, but demand for lower-volume higher-potency APIs remain an opportunity for Western CMOs to take advantage of.

The complexity of new molecules, tech transfer and higher containment factors of APIs, as well as pre-empting the market, “will favour domestic CMOs,” but, he continued, “the threat is now from insourcing rather than between Eastern and Western CMOs.”