• BioPlan Associates, Inc.

Can India and China Compete More in the Global Arena?

Around 45% of biopharmaceutical manufacturing organizations expect to off-shore at least some of their operations over the next five years, with the figure dependent on the nature of the activity, according to BioPlan Associates’ 13th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production.¹ Clinical trials and operations are, predictably, the most off-shored, based on 222 responsible individuals at biopharmaceutical manufacturers and contract manufacturing or-ganizations (CMOs) in 28 countries.

 Figure 1. Cost-Cutting Changes Specific to Outsourcing

By comparison, roughly 43% plan to off-shore some of their biomanu-facturing operations, consistent with what has been reported over the past three years. Though there’s less appetite for off-shoring of process development for biomanufacturing, still, a third of respondents expect to be doing so in the coming years, which is down from peak levels earlier this decade. The lower levels of expectations for process development activities are to be expected, given concerns over technology transfer, management and intellectual property issues.

There are clear indications that past-year expectations for off-shoring are beginning to come about. In addition to a number of well-publicized facility expansions to China and elsewhere, the opening of qualified cGMP CMO services abroad is expanding global access.

While cost-cutting is just one aspect of the outsourcing calculus – our study indicates that some companies are willing to off-shore even some core and high-value manufacturing operations specifically to cut costs. This year’s study indicates that 18% of respondents outsourced manufacturing to non-domestic service providers to cut costs, a figure almost double the share from 2012 (9.4%) and more than triple the proportion from 2011 (5.7%).

This also suggests that a great majority (e.g., 82%) are off-shoring manufacturing activities with motivations not related to cutting costs. The rising number focusing on cost may also suggest that companies are finding some success with off-shoring, and are now considering cost-cutting mechanisms. In fact, this year, more companies reported outsourcing manufacturing to a non-domestic service provider than to a domestic one for cost-cutting purposes.

Global Competitiveness: Who’s Ahead?

As the importance of a contract manufacturing organization’s geo-graphic location recedes, the global playing field is leveling out, with other factors such as quality standards compliance, IP protection, and effective handling of cross-contamination issues instead top of mind for clients considering outsourcing. And with 40% of global bio-pharmaceutical manufacturing capacity now concentrated in areas outside of the traditional hubs of North America and Europe, per our Top1000bio.com wiki site,² this means that an array of other emerging economies have the opportunity to benefit from the biomanufacturing industry’s continuing expansion.

So which countries are winning the war of perception? Our study indicates that many countries outside of the US and Europe are struggling to make a dent, with some notable exceptions.

Among US-based companies surveyed for our report, China easily topped the list of countries considered a “possible” destination for international outsourcing over the next five years. When we narrowed the list down to more positive consideration for country destinations (“strong likelihood” or “likelihood”), China also remained in the lead, cited by more than one-third (35.9%) of respondents as a likely destination for international outsourcing. This was the highest level of expectations for China this decade, surpassing the previous peak of 28.1% registered in 2012. To give context to China’s growth, in 2009 just 2.8% of US respondents considered it likely they would outsource there in the following five years.

There’s less positive consideration for other non-traditional hubs, though. Ireland is next on the list of US companies’ likely destinations, followed by a group that includes Korea, Switzerland, the UK and Belgium. That leaves Brazil and India in the joint seventh position, with only about one in ten US respondents considering it likely they would outsource to those countries by 2021. That’s a fairly striking result for India, as it’s the lowest level of consideration since 2009, and only about half of its peak in 2012. In other words, US companies’ views towards China and India as off-shoring destinations seem to be trending in opposite directions.

It’s a different story for respondents based in Western Europe, though. For these companies, India joins Belgium, Korea, and Switzerland as the third most commonly cited countries as “possible” destinations, behind only the US and Germany. In terms of the more positive likelihood, India ties with Switzerland for the fifth spot, with exactly one in four Western European respondents deeming there to be a “strong likelihood” or a “likelihood” that they outsource there in the next five years. In so doing, India tops all other markets outside the US and Western Europe, including China (16.6%) and Korea (8.3%).

What Can India Do to Improve its Competitiveness?

Although India’s competitive position globally is fairly strong among West- ern European respondents, it fares relatively poorly among American companies. To find out how India can improve its position, we sep-arately surveyed more than 100 qualified individuals working at bio-pharmaceutical facilities in India. The majority of our survey respondents work in large-scale commercial biologics manufacturing for therapeutics, though many work in contract manufacturing for biologics.

We asked respondents what strengths a top biologics company must possess for India to expand globally as a center for biopharmaceuticals. We found that the most commonly-cited top-5 strength attributes were:

• Scale-up/transfer expertise (44.2%);
• Scientific/technical expertise (38.5%);
• Regulatory track record/expertise (37.5%);
• Overall “quality” image (37.5%); and
• Customer/client service excellence (33.7%).

Several of these are in line with clients’ expectations for CMOs, according to our annual study. Indeed, many clients surveyed considered the following to be “very important” issues when considering outsourcing biomanufacturing to a CMO:

• Compliance with the client’s quality standards (63.3% citing as “very important”, and #1 on the list of 19 attributes);
• The establishment of a good working relationship (53.3% “very important”; #4 on the list);
• Regulatory compliance expertise (41.7% “very important”; #7 on the list).

Meanwhile, when it comes to the attributes that India biopharma companies lack today to be competitively globally in a GMP environment, respondents in India reported a different order of attributes.

It appears that those working in the industry in India are most concerned about India’s overall “quality” image, with more than four in ten respondents noting this to be among the five attributes most lacking for companies in India. Some Indian companies have failed FDA and other regulatory inspections, likely explaining why respondents there feel that it needs to improve its image.

Respondents also see Indian companies as lacking in scientific/technical expertise, audit results and timeliness/scheduling/reliability. That last point is very important, as clients responding to our annual study consistently rate the ability for a CMO to stick to a schedule as being among their most important criteria when choosing a contract manufacturer to partner with.

Interestingly, while these respondents believe that biologics companies in India need to demonstrate customer and client service excellence, this is the area in which they are least likely to feel that they are lacking.

Part of the issue for India – which our Wiki site estimates houses almost 10% of global biopharmaceutical manufacturing capacity – relates to its ability to meet cGMP requirements. Many emerging market facilities – including in India – only have approvals or inspections for local and regional markets, not having yet gained these for the US or the EU.

This can be expected to change in the coming years, and respondents in India seem to be heading in that direction. Currently, respondents are more likely to say that their biologics objectives relate to domestic production (80.4%) than to production of FDA/GMP biologics for export to the US and the EU (66.7%). However, looking ahead ten years, and all (100% of) respondents expect to produce for the US and the EU, compared to 92% who will focus on domestic production.

Conclusion

Our annual study indicates that while most companies remain resistant to off-shoring, there is a consistent number who expect off-shoring to be in their medium-term future. This suggests that there will be more business to be sought after by contract manufacturing organizations across the world.

For now, the traditional hubs of US and Europe are most likely to be considered for off-shoring, although China is the most mentioned destination by US companies. While India is relatively strong among Western European companies, its appeal appears to be eroding among those in the US.

To improve its competitiveness on a global scale, qualified individuals in India believe that biologics facilities there must demonstrate their technical expertise, their “quality” image, and their customer service excellence. Of these, though, biologics companies most need to improve their perception as “quality” partners, as this is the area in which they’re most lacking and the area that is most important to clients.

References:

1. 13th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, April 2016, Rockville, MD www.bioplanassociates.com/12th
2. BioPlanAssociates,Top1000 Global Biopharmaceutical Facilities Index, www.top1000bio.com, accessed August 23, 2016.

Eric S. Langer is president and managing partner at BioPlan Associates, Inc., a biotechnology and life sciences marketing research and publishing firm established in Rockville, MD in 1989. He is editor of numerous studies, including “Biopharmaceutical Technology in China,” “Advances in Large-scale Biopharmaceutical Manufacturing”, and many other industry reports. [email protected] 301-921-5979. www.bioplanassociates.com

Survey Methodology: The 2016 Thirteenth Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production yields a composite view and trend analysis from 222 responsible individuals at biopharmaceutical manufacturers and contract manufacturing organizations (CMOs) in 28 countries. The methodology also included over 150 direct suppliers of materials, services and equipment to this industry. This year's study covers such issues as: new product needs, facility budget changes, current capacity, future capacity constraints, expansions, use of disposables, trends and budgets in disposables, trends in downstream purification, quality management and control, hiring issues, and employment. The quantitative trend analysis provides details and comparisons of production by biotherapeutic developers and CMOs. It also evaluates trends over time, and assesses differences in the world's major markets in the U.S. and Europe.