Intellectual
property protection. Even though India officially adopted the
world patent convention in January 2005, most experts believe it will
be years before India’s courts, regulators, and business practices come
into full compliance. Companies working in China face similar risks.
Longer
supply chains. Sourcing clinical supplies or comparative agents
offshore will lengthen the clinical supply chain, both in distance and
in time. Given the sensitivity of clinical timelines and the frequency
of last-minute changes to clinical protocols, sponsors may find
themselves facing higher costs, trial delays, or reduced flexibility as
a result of offshore sourcing. Realizing the savings from offshoring
may require more extensive changes in R&D processes such as locking
down protocols earlier.
Stability
of the supplier market. The local supplier base in India and
China is still evolving and may be subject to a lot of flux in coming
years. For instance, Lotus Labs, a Bangalore-based provider of clinical
research services, was recently acquired by Iceland-based generics
company Actavis (Hafnarfirdi, www.actavis.com).
In announcing the
acquisition, Actavis said it would use Lotus to reduce its internal
R&D costs and help it develop new products for the US market. Lotus
Lab’s continued role as a CRO was left up in the air by the
announcement.
India and China have a growing number of respected local CROs,
including Wuxi PharmaTech (Shanghai, www.pharmatechs.com) in China,
which provides chemistry services, and
Clinigene and Syngene in India, which are both subsidiaries of Biocon
(Bangalore, www.biocon.com) and
provide clinical research and chemistry
services, respectively. Western companies are rushing to get their own
operations established in low-cost locations. Albany Molecular Research
(Albany, NY, www.albmolecular.com)
is establishing a laboratory in
Hyderabad, India; Lonza (Basel, Switzerland, www.lonza.com) has opened
a facility in Guang-zhou, China; and Discovery Partners International
(San Diego, CA, http://www.discoverypartners.com) has
affiliates in both countries. On the
clinical side, Quintiles (Research Triangle Park, NC, www.quintiles.com) has
extensive operations in India; other CROs such
as Covance (Princeton, NJ, www.covance.com),
PharmaNet (Princeton, NJ, www.pharmanet.com),
and
Icon (Dublin, Ireland, www.iconclinical.com)
also have operations there.
The bottom line for sponsors is that savings from going offshore will
be illusory unless they do their homework carefully and prepare fully.
The reality is that they will need to commit to doing a lot of work
offshore to justify the overhead costs they will incur to make their
offshore sourcing successful.
The appropriate response for Western contract service providers to the
offshore competition is to either “beat ’em” or “join ’em”. The “beat
’em” strategy requires an unrelenting focus on performance, with a
dedication to continuous improvement targeted on reducing costs,
speeding response, and innovating. This strategy also means building
strong links with the customer and constantly demonstrating to the
customer that the overhead associated with sustaining your relationship
is substantially less than that required to sustain an offshore
sourcing relationship.
The “join ’em” strategy recognizes that with their broad client base
and large volume, CROs and CMOs can support the infrastructure to
maintain dependable and effective offshore sourcing relationships. The
value proposition of companies such as Albany Molecular and Lonza is
that they will provide their clients with advantages of offshore
sourcing without the clients’ needing to invest in their own offshore
sourcing infrastructure. They are effectively risking their client
relationships and reputations to make sure they continue to survive in
a very cost-conscious environment. PT
