Outsourcing API Manufacturing to Asia: Pros, Cons, & Considerations
Concerned with rising R&D costs, U.S. bio/pharma companies are considering Asian countries, such as India and China, for the development of their Active Pharmaceutical Ingredients (APIs) and pharma products, often because manufacturers there can provide low-cost production facilities and cheap labor.
On a cost perspective, Asian manufacturers may be able to save companies 30-to-60-percent of the costs of manufacturing in the U.S. Yet, while offshoring may make sense for some industries and certain biotech projects, there are pitfalls and caveats that U.S. companies should closely consider before committing to working with a team based outside the country.
Apparently many U.S. companies have come to realize those challenges, since several years ago it was predicted that eventually all chemical manufacturing would take place in China. Yet, API manufacturing still takes place domestically, and the U.S. business is continuing to grow, outpacing that of Asia Pacific. Below are some things to think about when considering manufacturing in India and China.
Challenges of Outsourcing API Manufacturing: U.S. regulations
The key challenge for working with offshore manufacturers is the U.S. regulatory environment. For many years, the facilities of manufacturers in India and China developing APIs for sale in the U.S. were not inspected. But the advent of stricter inspection policies enabled by the Generic Drug User Fee Amendments (GDUFA) increased the FDA’s ability to fully inspect offshore facilities more closely to ensure that they are strictly following Good Manufacturing Practices (GMP), as well as Western standards. This closer scrutiny has often resulted in failed inspections and subsequently banned imports. While costs can most certainly be cut when inspections go right, failed inspections often result in costs doubling or tripling when production needs to begin all over again in Western facilities.
Time Zones Difference and Language Issues
Another issue has been the difference in time zones, language and cultural barriers. Most API projects are complicated, with lots of moving parts and regulatory activity. This type of complexity requires a close partnership and regular, open dialogue between a sponsor and its Contract Manufacturing Organization (CMO). Working around the communication challenges can make regular meetings and activity reporting difficult; India and China are 10.5 and 13 hours, respectively, ahead of Boston – and that means it can take more than a day to be able to connect the sponsor in the U.S. with the team located actually halfway around the world. And that doesn’t take into account the challenge of developing a relationship with your team since they may not understand English. Ensuring complete transparency, with immediate updates as soon as problems arise, can be impacted by time-zone, cultural and language differences. Also, when dealing with complex issues, it can be a lot easier to drive over or fly to a U.S.-based CMO rather than one based in India, which can be at least a 17-hour flight away.
Complexity + Distance = Hard to Manage, Differing Expectations
Offshoring CMO work sometimes works best when you are in later stages of chemical manufacturing. Yet for projects that involve a great deal of complex technical discovery work, it might not be the best course to choose a CMO outside of the country when communication, knowledge exchange and collaboration is essential. Additionally, if any issues arise regarding intellectual property (IP), litigation needs can be extremely challenging when addressing them from abroad. This is particularly true given that the laws in other countries do not necessarily provide the same IP protections as in the U.S. Related to this, before working with any CMO in Asian countries, it is often helpful to work with a broker or agent on the ground who can advocate for you when needed.
Four Key Questions for Prospective CMO Partners
Since it can make good economic sense in some instances to partner with a CMO in India or China, below are four key questions you should be asking before entering into any partnership:
- How do you address project management? Inquire about the CMO’s reporting structure, how often they hold regular meetings with their sponsors, what their communication process may be for when problems arise, and if they have a dedicated project manager available at all times. Most importantly, ask to speak to the project manager, as well as a customer to hear first-hand.
- Do you have redundancies in place? It’s a given that in chemical manufacturing, problems can and will arise. Ask the CMO if they have a Plan B for when issues arise, and what types of redundancies they have put in place to ensure that small problems don’t cause major disruptions.
- Can you give me less-than-stellar references? Speaking with customers is probably the most important thing you can do to vet a CMO partner, whether in the U.S. or offshore, but don’t settle for the company’s customer poster child. Ask to speak to a customer that ran into problems so you can hear how the CMO was able to overcome them.
- What percentage of your business is with U.S. companies? This question will give you a good idea of how experienced the company is in terms of navigating FDA guidelines and policies, as well as how they are able to assimilate the U.S. business culture and time-zone barriers.
There’s no simple answer to whether it makes good business sense to turn to an Asian-based CMO to handle your API manufacturing. While there can be cost benefits, companies must understand the risks and choose wisely.