Evaluating the Pieces of the Pharma Supply Chain

After a year of increased attention on the pharmaceutical supply chain in Asia, what will be the region's short- and long-term role? This article contains bonus online-exclusive material.
Jan 02, 2009


(ILLUSTRATION BY M.MCEVOY. IMAGES: JOHN LAMB, ULTRA.F/GETTY IMAGES)
With low-cost production and a pool of scientific talent, Asia, specifically China and India, has risen in pharmaceutical outsourcing and ingredient supply over the past several years. High-profile events concering product quality and manufacturing practices for select suppliers, and recent political turmoil in India, however, have placed increased attention on the region.

Key events were the importation of contaminated heparin supplied from a Chinese facility (see sidebar, "Post-Heparin: Baxter Responds") and incidents of melamine in food and pet food products and diethylene glycol in toothpaste from China (1-4). In September 2008, the US Food and Drug Administration issued warning letters and an import alert for products made at two facilities of Ranbaxy Laboratories (Gurgaon, Haryana), one of India's largest pharmaceut ical companies, for deviations in current good manufacturing practices (5). And recent terrorist attacks in Mumbai, India's capital, raised security concerns.

Assessing Asia's role

But before considering these events, it is important to evaluate the fundamentals of pharmaceutical outsourcing to Asia. "Cost has always been a driver of outsourcing decisions," says Mike Keech, director of PricewaterhouseCoopers' (PwC) advisory services group in the pharmaceutical and life-sciences sector. "But in today's market, cost is no longer the primary driver—it's just an additional evaluation point. You have to balance cost with risk and market opportunity. Companies today, for example, are balancing their outsourcing approach by trying to look at technology and intellectual property protection along with development and manufacturing capacity capabilities."


Figure 1. PricewaterhouseCoopers assessed the risk of outsourcing to the above 13 Asian territories based on three core factors. The factors were weighted as follows: Cost (33% total), which includes compensation and wages (15%), infrastructure (8%), tax and regulatory expenses (10%); General risks (37% total), including geopolitical (6%), human capital (10%), economic (7%), legal (8%), and infrastructure (6%); and Market opportunity (30% total), including healthcare needs of current and future population (15%), market size (7%), and market growth rate (8%). (FIGURE IS COURTESY OF PRICEWATERHOUSE COOPERS, 2008.)
To more fully understand those issues, PwC assessed 13 Asian countries based on cost, risk, and market opportunity, and released the results of that study in October 2008. China and India ranked as the two most desirable outsourcing candidates among Big Pharma (see Figure 1) (6). Keech points out, however, the buyer has become more sophisticated and how much longer China and India hold their top positions remains to be seen.

Other Asian countries are gaining a foothold as viable pharmaceutical outsourcing contenders. Korea and Taiwan are just a few steps behind China and India, says Keech, and will soon be followed by Indonesia and Malaysia. Much farther down on the list of ideal outsourcing candidates is Thailand, which "looks interesting from a labor perspective and because of their worldclass set of intellectual property laws," says Keech, but whose "interpretation and enforcement are far from ideal."