Targeting Different Off-Shore Destinations

Biopharmaceutical manufacturing is following the general pharmaceutical market trend toward global expansion. Fewer clients are considering CMOs’ geographic proximity as a critical factor in their partner selection process, according to results from BioPlan Associates' 11th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production (1). The study identifies the markets best poised to profit from the internationalization of the outsourcing, finding that emerging markets such as China and India are among top potential destinations for both US and Western European companies.

As part of the study, BioPlan asked respondents to consider their five-year time horizon (lead-up to 2019) and to evaluate their facility’s current plans for future international capacity expansion (not domestic). BioPlan identified more than 25 countries as potential outsourcing destinations. In cases where respondents did not have an immediate outsourcing need, BioPlan believes their answers reflect their hypothetical biases for destinations of choice (seeFigure 1).

Among all respondents, the United States ranked highest again as a potential outsourcing destination, with 26.8% (up from 26.3% last year and 16.9% in 2012) of global respondents indicating that there was a “Likelihood” or “Strong likelihood” that they would outsource production to facilities there. Following the US was China (24%, up from 10.6% last year) in a rather dramatic jump to the second position after posting the ninth spot in 2013.

Germany (15.5%) and India (12.7%) were next on the list after the US and China, while Singapore and Switzerland jointly rounded out the top five, each cited by approximately 1 in 10 respondents.

Although China and India remain popular outsourcing destinations, certain factors limit their attractiveness to biomanufacturers. BioPlan’s 2014 study found that regulatory compliance expertise is an increasingly crucial CMO attribute. This expertise is likely a reflection of a growing interest in outsourcing core activities for which regulatory manufacturing-related requirements are more stringent compared with smaller-scale R&D, research reagents, and clinical supplies manufacture that have typified international outsourcing and off-shoring in the past.

A keener focus on regulatory issues might hinder the attractiveness of emerging destinations such as China and India, which may not fully have demonstrated, or at least perceived, expertise in this area to rival more established markets. As one respondent commented: “Off-shoring is too complex from a regulatory perspective outside EU/US.” This sentiment is probably more pronounced for developing markets, which also have to contend with companies’ intellectual property (IP)- and quality-related concerns when outsourcing to CMOs in developing countries, with these aspects also being important considerations when choosing a CMO.

China’s rebounddriven by Western Europe
Despite regulatory concerns, the data indicate that China and India are seen as potential destinations in the next five years. Interestingly, China’s prominence this year is the result of an increase in attractiveness in the eyes of Western European respondents. Indeed, this year, China tied the US as a potential destination for outsourcing over the next five years, each cited by approximately 47% of Western European respondents. That level was the highest of consideration on record for China, which in 2013 was cited in the single digits.

When asked about predictions of a “Strong likelihood” or “Likelihood” for international expansion of outsourcing during the next five years, Western European biomanufacturers actually indicated that China was top of their list, a likely destination for 33% of respondents, followed by the US at 27%.

The US and China are clearly the top potential destinations for Western European biomanufacturers, with Germany, UK, Switzerland, Brazil and Japan each cited by slightly more than 13% of respondents. Of those, the UK and Switzerland both grew as likely destinations from 2013; it should be noted that India did not make the list of top likely destinations for Western Europeans.

US biomanufacturerslook first to Singapore
While China certainly appears to have increased in its appeal to Western Europeans, the same can’t be said when it comes to US biomanufacturers. According to the study results, US respondents continue to see Singapore as a strong outsourcing destination, with a leading 39% citing the country as a ‘possible’ destination this year (up from 32% in 2013, 31% in 2012, and 28% in 2011). Germany is also growing in consideration, coming in a close second again this year, cited by 36% of US respondents as a possible destination (up from 29% in 2013, 25% in 2012, and 22% in 2011).

Trailing a little further behind are India (27%, up from 23%) and Ireland (also 27%, up from 19%) (multiple responses allowed). Rounding out the top five potential destinations was China, cited by one-quarter of US respondents, but the only country of the top five not to see an increase in appeal from 2013.

BioPlan also evaluated US responses indicating more positive consideration for country destinations as either a “Strong likelihood” or “Likelihood.” The top “Likely” destinations for US-based respondents are Singapore and Germany, each with 16% of respondents (19% last year) considering it either a “Likelihood” or a “Strong likelihood”. Next were China (14%) and India (11%), although Switzerland and Ireland each had more respondents indicating a “Strong likelihood” of outsourcing there. It is somewhat surprising that Canada did not make this list, despite Canadian CMOs likely used by more US clients currently than CMOs in countries such as Brazil and Spain, which did make the list of likely destinations.

Offshoring during next five years
There will be growing opportunities for CMOs around the world to forge new partnerships with clients, according to the study, as 47% of respondents indicated that they will offshore at least some of their biomanufacturing operations in the next five years, a significant increase from the 30% sharing that sentiment just three years ago. More respondents this year also expect to outsource some process development for biomanufacturing (43% vs. 35%) and clinical trials/operations (58% vs. 56%). Nevertheless, clients will tread lightly, estimating that they will only offshore somewhere around 10% of those activities in five-years’ time for biomanufacturing operations, clinical trials/operations, and process development for biomanufacturing.

While there will be growing pool of client prospects for CMOs to market their services, the market will be extremely competitive. Comments from respondents suggest that certain activities will be more likely to go off-shore, including:

• Viral studies and cell-line development
• Fill-finish
• Off-shoring administration and data management
• Outsourcing services that do not need to be performed in real-time
• Testing and other routine activities such as stability studies, analytical testing, and cleaning studies.
• For global CMOs opportunities will continue to grow. And as the BioPlan study shows, while certain regional considerations will come into play, clients are as ready as ever to work with partners around the world, if they have the right experience.

Reference
1. BioPlan Associates,11th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production (Rockville, MD, April 2014). PT

About the Author
Eric Langer is president of BioPlan Associates, tel. 301.921.5979, elanger@bioplanassociates.com, and a periodic contributor to Outsourcing Outlook.