LANDS OF OPPORTUNITY?
Global offshoring has become a prominent industry trend due to the high costs of pharmaceutical and biologicals manufacturing in traditional western markets. This trend is most noticeable in developing countries that can offer high-quality manufacturing capabilities at significantly lower costs. At present 20% of the pharma companies and biotechs that outsource choose to do so in “low-cost” countries, with this figure expected to increase to 34% over the next five years.
Risks vs Benefits
A major milestone in this story was the 1997 passing of the FDA Modernization Act, which allowed for the offshoring of biologicals manufacturing – a key development given the pharma industry’s ever growing interest in the promise of biotech drugs. This in theory should have opened the door to an enormous market for Asian-based manufacturers, although in practice they have yet to fulfill this potential, largely on account of western concerns over compliance with international standards, technical expertise, language and cultural barriers, and physical distance from customers.
So, naturally, there is a degree of hesitance among the biopharmaceutical community when it comes to offshoring to Asia. However, when investment bank Morgen, Evan & Company questioned a sample of biotech and pharma executives about their offshoring preferences, over 90% said they would be interested in Asia as long as the cost advantages outweighed the potential risks. In the same study, the bank found the cost of biopharmaceutical manufacturing in many Asian countries to be 40% less than that in the US and Western Europe.
The most prominent biopharmaceutical offshoring locations in Asia today are China, India, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
COMMON TONGUE: Asian countries have formidable capabilities in manufacturing, yet language and cultural barriers remain.
Of course India and China top this list thanks to these countries’ experience in generics manufacturing, their highly-skilled workforces and strong technology bases. Recently, Singapore has shown great potential for growth in the biotech sector, with the opening of several new mammalian cell culture manufacturing facilities, despite the fact that the local community is not yet accustomed to the industry’s financial risks3
According to research by PricewaterhouseCoopers analyst Dan Bartholomew, the trend of offshoring to Asia will continue to grow because of the pre-existing generics industries (especially in China, India and Singapore) and the potential for cheaper manufacturing4 Together, India and China are expected to account for 35-40% of the outsourced market for intermediates, APls and finished-dose formulations. In fact, by 2020 India and China are expected to have challenged the international market for biopharmaceuticals with the production of biogenerics.
Trends in manufacturing
Numerous industry dynamics are helping to shape the market for biotech drug manufacturing. For instance, pharma’s current focus on biological drugs has led to a healthy demand for protein therapeutics such as monoclonal antibodies, gene therapies and recombinant vaccines.
New therapies are targeting broader indications because next-generation drugs are proving to be difficult to develop. And many companies are focusing on specialty areas, such as oncology and autoimmune diseases.
From the patients’ perspective, the growing affluence of emerging markets is leading to the increased incidence of diseases more typically associated with the developed world, including obesity, high blood pressure and diabetes. Yet many patients in these countries cannot afford the branded drugs available in the West to treat them. Thus, generic drugs could be expected to become more prominent in the years to come.
In addition, as several biopharmaceuticals near the end of their patent terms, western companies are considering moving their biologicals manufacturing to Asia to take advantage of the region’s less stringent regulatory systems. In this respect, a handful of Asian countries, including India, China, Singapore and South Korea, are expected to become major biogenerics manufacturing players in the future. In China, biogenerics currently account for around 95% of biologicals manufacturing, and India is its foremost competitor.
The trend towards global offshoring comes with many challenges. These include inadequate IP protection, compliance issues, challenges associated with biologicals manufacturing, the absence of FDA-approved biologicals testing methods, as well as the language and cultural barriers. These issues are discussed in more detail below
A primary concern for most western companies considering offshoring to Asia is the (in)adequacy of Intellectual Property (IP) protection and patent laws. In 2005, US and western European pharma companies pushed for greater patent protection of their products manufactured in developing countries. In response to this pressure, and in the interest of expanding their own biopharmaceutical industries, many Asian countries have since improved legislation in this area. In 2005, for instance, India passed the Patents (Amendment) Act, which no longer favoured generic products. Chinese IP protection laws also underwent changes when the country entered the World Trade Organization in 2001 – the relevant laws are expected to improve significantly over the next five years. At present, among emerging offshoring locations in the region, Japan, South Korea, Singapore and India provide the best I P protection.
Compliance with GMP
Many Asian countries have adopted international standards for manufacturing (yet differences remain in the degree of compliance with current Good Manufacturing Practices (cGMPs))
South Korea, for example, implemented its own equivalent form of cGMPs by establishing Korean Good Manufacturing Practices (KGMP) in 1994. India, meanwhile, boasts the largest number of FDA-approved pharmaceutical plants outside the US, especially in the vaccines sector.” As of 2006, the prominence of Singapore in terms of the offshoring of biopharmaceuticals has been partly due to its compliance with cGMPs. And thanks to government investments and the hiring of new regulatory officials, China’s biopharmaceutical sector is distinguishing itself from other types of manufacturing that have recently been problematic, such as toys, clothing, and food products which have been recalled.
The complexities of manufacturing biological therapies molecules in living systems compared with small molecule synthesis via chemical processes is widely acknowledged. In addition, because biosimilars cannot be manufactured to the exact same method as the original product, the safety and efficacy of such therapies has become an intense area of debate.
Taking India as an example, although this country’s industry excels at manufacturing small molecule generics, mammalian cell line production methods for biologicals are relatively less common. Consider that the process of developing biologicals using mammalian cell lines is relatively complex, particularly in the initial stages. In this respect, western companies have to implement innovative approaches when transferring biologicals manufacturing abroad.
One successful strategy is to establish the initial stages of manufacturing in the West, and then to transfer the later stages of production to Asia once the early development process has been perfected. Arguably, as Asian countries gain more experience in this area and are able to demonstrate to customers a good track record, they will be able to produce biologicals at all stages of the manufacturing process.
In March 2008, a US bill dealing with regulatory issues for biosimilars was introduced, and it is currently being passed through the country’s legislative process. “The Pathway for Biosimilars”, as the bill is called, would require that any applications for biosimilars include information based on analytical, animal and clinical studies, which sufficiently demonstrate their safety and efficacy. Not all such testing will be required if it is determined to be unnecessary for the particular product
In Europe, meanwhile, the EMEA has set up an approval system for biosimilars, under which products are treated on a case-by-case basis. The European system thereby allows for inherent differences in biologicals. According to this system, some biologicals must undergo clinical trials, while others may only need analytical laboratory and/or animal testing for safety and efficacy. 10 As the methods for testing, and the underlying regulations evolve, the issues of safety and efficacy of biologicals, including Asian-manufactured products, can be expected to be resolved.
At least three-quarters of global business is currently conducted in English, but the need for expert translators and interpreters in non¬native English-speaking countries continues to be a major consideration in offshoring. This may be less of an issue in the case of Asian¬based senior managers, many of whom can communicate well in English. However, it is likely to be a concern for manufacturing plant employees. Even in Asian countries where English is spoken as a second language, such as India, the inability to communicate information accurately can lead to costly mistakes.
The linguistic challenges encountered in translating manufacturing SOPs into native languages should not be underestimated. In addition, clear communication between Asian employees and their opposite numbers in the West is critical to maintaining international sites. A number of international contract manufacturing organizations (CMOs) have already transferred biologicals manufacturing to China.
Even in Asian countries where English is spoken as a second language, such as India, the inability to communicate information accurately can lead to costly mistakes. Consider that highly-technical processes may have to be transferred between biologics manufacturing facilities within the same country, and the complications that are introduced abroad by language differences are significantly greater.
The linguistic challenges encountered in translating manufacturing SOPs into native languages should not be underestimated. In addition, clear communication between Asian employees and their opposite numbers in the West is critical to maintaining international sites.
A number of international contract manufacturing organizations (CMOs) have already transferred biologicals manufacturing to South Korea, India, Singapore and China. But, as Jon Mowles, Alpha Pharmaceuticals European commercial director comments, “Transferring projects lock, stock, and barrel to the Far East can throw up many problems with respect to organizing face-to-face meetings with clients”. Mowles warns that “language and basic distance barriers can also make clients feel like they have lost control of their project”.11
China. . In China, the most commonly spoken foreign languages are Korean and Japanese. This makes offshoring by western companies challenging. All manufacturing SOPs must be translated into the official Mandarin Chinese. In addition, several other native languages are spoken throughout the country, and two accepted forms of written Mandarin are used in translations: Traditional Chinese (TC) and Simplified Chinese (SC). On mainland China, TC is the most common.12
Nevertheless, China has been making efforts to increase English fluency through its educational system. Another factor is the significant reverse brain-drain of Chinese-born, foreign-educated citizens with backgrounds in technology. This population, especially those educated in western English-speaking countries, could help to bridge the communication gap between China and the West.
India. English is the unifying language of India, but there are several other languages native to much of the population, including of course Hindi, the official tongue. The largest group of English speakers currently includes the country’s many engineering and computer sciences graduates – this factor fosters excellent communication in the IT sector, for instance. It does not, however, guarantee that employees at manufacturing plants will be equally proficient in English.
South Korea, Singapore, Taiwan. In South Korea, all documentation must be provided in Korean. In Singapore, meanwhile, Malay, English, Mandarin, and Tamil are the four national languages. Taiwan has three national tongues; Mandarin, Taiwanese and English. Although business in these countries is conducted primarily in English, written procedures must be translated into the native languages.
Successful offshoring requires plant managers to make regular site visits to ensure that regulatory standards and efficiency of work processes are maintained. Local interpreters normally accompany managers during these visits, even in countries where English is spoken as a second language. As Michel Lurquin, a UCB executive and former plant manager, points out “Of course it helps if you speak the language and are familiar with the local cultures. In Japan, where I don’t speak the language, it’s much harder for me to get this sense of what is going on.”
Cultural attitudes and project management styles in Asia differ greatly from those in the West. However, there are some important similarities among Asian cultures. First, it is common for Asian employees to “over-promise” in order to please their employers. For example, there may be a verbally-agreed timeline that Asian employees may not consider to be “final”. Thus conflicts can arise between western customers and Asian suppliers when expected deadlines are not met
Second, in many parts of Asia, it is culturally unacceptable to share negative or unpleasant information in the workplace since it indicates an employee’s failure to do their job. In addition, for the most part, questioning authority is not common practice. Western managers must encourage local employees to ask questions during site visits.
Finally, project management styles in the East and the West differ significantly, although there has been some progress recently towards promoting better mutual understanding.
A look ahead
Global offshoring in the biopharmaceutical industry is growing in line with demand for competitive costs in manufacturing. As Asia improves its IP protection laws, and biological manufacturing practices and testing methods become more standardized, countries in the region can be expected to become prime offshoring locations. Those companies that are prepared to deal with the challenges, including language and cultural barriers, will be best positioned for success.
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