Realizing the Full Potential of Pharmaceutical Processing Operations in Non Western Markets

Moving Toward A Global Economy
By Shawn Laymon, Director—Market Strategy and Business Development—PerkinElmer’s OneSource

One of the key words characterizing the economic climate of the 21st century is globalization. Advances in science, technology and transportation, improved education levels, agreements that allow the free trade of goods, and the world’s quickly growing population have all contributed to unprecedented levels of inter-connectedness among many developing and developed markets. In the pharmaceutical industry, commercial borders have been erased and globalization has introduced a host of new opportunities and challenges. This has forced many companies to reinvent business models in order to continue to be competitive in both Western and non-Western markets. One emerging model is for companies based traditionally in Western markets to move operations offshore for cost savings and to directly access high-growth markets such as India and China. However, offshoring is only the beginning and simply moving operations to developing markets will not guarantee the returns sought by today’s pharmaceutical companies. Utilizing a total service provider to optimize laboratory operations including compliance, maintenance, repair, relocation and training, provides today’s pharmaceutical companies the opportunity to realize the true potential of these emerging markets.
Impact of Globalization on Pharmaceutical Manufacturing in Western Countries
Historically, many pharmaceutical companies have located both research and development (R&D) and manufacturing facilities in Western countries, where they can leverage a highly educated talent pool, enjoy close physical proximity to their end-market customers, to lower distribution costs and can provide close operational oversight. For decades this has proven to be a sound strategy and Western markets have certainly been lucrative, with the U.S. alone accounting for nearly half of total pharmaceutical revenues in 2006. Furthermore, pharmaceutical sales in all Western markets are expected to grow as post-World War II generations continue to enjoy the best life expectancy rates in history.

However, the story of the last several years has not been entirely positive for the pharmaceutical industry as drug discovery pipelines have seen significant erosion and many current blockbuster (more than $1 billion in sales) drugs have started to come off patent, making them vulnerable to the profit-sapping encroachment of low-cost generics often manufactured in comparatively inexpensive markets such as India. By now it is widely accepted that labor is expensive in Western countries and, as pharmaceutical companies face increasing pressure to reduce costs while contending with the specter of diminishing drug discovery breakthroughs, many drug manufacturers are actively investing in options that help them avoid the high infrastructure costs that go along with maintaining development and/or manufacturing operations in these traditional locations.

In addition to high labor costs, companies that sell drugs in the United States and other Western markets are subject to stringent regulatory requirements from a number of government entities such as the Food and Drug Administration (FDA). The process of obtaining clearance from the FDA requires specialized expertise, substantial preparation, and rigorous proof to ensure that pharmaceuticals are safe for consumer use. Unsurprisingly, the labor and process-intensive nature of maintaining regulatory compliance often drives substantial cost for modern pharmaceutical firms, causing these firms to look for options that allow them to lower laboratory operation costs, while maintaining high levels of product quality and operational efficiency. One option widely adopted in Western markets has been laboratory service consolidation and asset management; another has been the relocation of certain laboratory operations overseas.
Rapid Growth in Non-Western Markets brings Opportunities and Challenges
Non-Western markets, particularly those in the Pacific Rim, can vary widely in their regulatory climate, workforce education and experience and costs of doing business. For example, Australia and Singapore are more mature markets with similar costs and regulatory requirements as many Western countries – features that make establishing operations in these locations a relatively straightforward process. On the other hand, countries like India and China are rapidly developing markets that have relatively low operating costs, but have a regulatory landscape that can only be described as exotic when compared with Western markets. When faced with the potential advantages of high growth and low costs, it is little wonder that most pharmaceutical Chief Financial Officers (CFO) or Chief Strategy Officers (CSO) feel compelled to make off-shoring a core part of their pharmaceutical processing strategy. However, these opportunities also introduce a number of new risks and challenges that must be mitigated in order to maximize the Return On Investment on their emerging market investments.

Among the most pressing of these new challenges are those associated with maintaining sufficiently robust regulatory compliance processes, optimizing laboratory productivity, and addressing the relative lack of qualified, experienced talent in developing markets. Of these three, the need to ensure that regulatory compliance programs are sufficiently robust has become particularly crucial as a host of recent scandals have caused both consumers and their governments to question the safety of pharmaceutical and consumer products manufactured abroad. This resulted in significantly increased regulatory pressure from agencies such as the FDA and their European Union counterparts.

Further exacerbating this issue, local governments often specify vastly different regulations for pharmaceutical manufacturing, labor, environmental and financial processes. This requires that companies institute operating procedures that comply with local regulation while also adhering to the regulatory requirements of the Western countries that continue to serve as major export markets. This variability introduces a level of regulatory compliance complexity that, when poorly managed, can drive significant cost and risk for the offshore pharmaceutical processing enterprise.
Reducing Risk & Improving ROI by Utilizing Laboratory Service Consolidation and Regulatory Compliance Best Practices from More Established Markets
Companies seeking to realize their emerging market ROI objectives must successfully navigate the challenges of meeting multiple countries’ differing regulatory compliance requirements. More important, they must do so while maintaining the same high efficiency and production quality they expect of their Western operations. As with their more traditional home-market operations, overseas laboratory compliance activities are often cumbersome and, when poorly managed and executed, significantly erode scientific productivity. Interestingly, laboratory service consolidation and management, one of the most powerful cost and risk mitigation strategies pharmaceutical processing firms have come to rely on in Western markets, has been all but absent as these same companies establish operations in new markets. This apparent disconnect – where pharmaceutical companies transfer assets and resources to new markets but fail to transfer proven best practices – has, until recently, stemmed largely from a relative lack of strong local laboratory service options. Addressing this should be a top priority for companies seeking to avoid risk and realize the ROI of their emerging market operations by leveraging the additional cost savings and operational efficiencies that service consolidation offers.

Unlike in many Western markets, the current laboratory service paradigm in many developing markets is for each lab to call on the Original Equipment Manufacturer (OEM) to service their laboratory instrumentation. As companies in many traditional markets have come to know, this is often the least efficient and most costly (in terms of both direct and indirect costs) form of laboratory service management. The sheer variety of laboratory instruments and technologies dictates that multiple OEM relationships – each with different maintenance and compliance protocols and disparate local resources (dealers, distributors, and direct OEM teams) – be managed. This creates tremendous administrative burden and logistical inefficiencies for local pharmaceutical processing resources, a situation made all the more challenging due to the relatively small numbers of sufficiently experienced and qualified resources available within developing markets to efficiently manage these kinds of operations. Fortunately, a small number of large Western laboratory service providers are now able to offer pharmaceutical processing companies the same service consolidation options in developing markets that they have come to appreciate in Europe and North America.

Pharmaceutical laboratory service consolidation and asset management is a process improvement that reduces costs and improves uptime by consolidating all service management activities with a single, comprehensive laboratory services provider. Operational efficiency gains are often dramatic as lab managers and personnel are immediately relieved of having to manage the services of multiple service providers and are able to standardize regulatory compliance processes. Perhaps more important in today’s cost-conscious environment, service consolidation models that place laboratory service professionals – resources that provide both direct services (maintenance, repair, qualification, relocation, etc.) for a wide array of scientific assets and manage the service provided by sub-contractors – onsite at a customer’s laboratory, deliver substantial cost savings (often better than 10-20 percent vs. other models) and service improvements (ultra-fast response times with extremely low downtime).These provide a powerful ROI multiplier for offshore operations. This is particularly true when dealing with scientific assets operated in regulated environments, an environment where robust multi-vendor instrument qualification can be instrumental in achieving a firm’s emerging market business objectives.

Leading pharmaceutical companies have found that the best way to ensure compliance, regardless of location, is to partner with a proven laboratory service provider that possesses a full complement of highly trained, local resources capable of providing a comprehensive suite of laboratory services. The ideal compliance solution for offshore pharmaceutical operations is one that combines asset management and complete preventative/corrective maintenance for all laboratory assets, with robust quality assurance and multi-vendor qualification practices. This is a proven approach that uses instrument qualification protocols customized to a customer’s specific operational and quality requirements (typically governed by a harmonized Validation Master Plan (VMP) for a given technology (HPLC, mass-spec, dissolution, etc.), across a wide array of manufacturers – designed to comply with both local and international regulatory compliance requirements. This combination of services introduces a level of cohesiveness that enhances efficiency, thereby reducing direct and indirect costs and ensures that all laboratory instrument service activities are closely tied to the laboratory’s quality system.
Delivering on the Growth and Profitability Promise of Emerging Markets
While pharmaceutical manufacturing is a global enterprise, all of the players share common needs: improve ROI, ensure regulatory compliance, and optimize productivity. Laboratories and service partners are continually working on ways to hone their competitive edge and are now starting to leverage new technologies such as Radio Frequency Identification (RFID)-based asset tracking and remote diagnostics to further improve laboratory efficiency. As discussed in this article, transitioning pharmaceutical processing operations to high-growth, emerging markets is only the first step in achieving the ROI pharmaceutical companies seek. Business performance can be significantly enhanced by partnering with a comprehensive laboratory service provider that is able to skillfully implement a complete, consolidated laboratory service solution that combines an innate knowledge of the local market environment with proven best practices.
References
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