Feature

India and China: Outsourcing Beyond the Comfort Zone (continued)

Good reasons for reluctance Despite the opportunities, the news isn't all good. When A.T. Kearney and CFO Research Services conducted interviews with executives and professors from 13 pharmaceutical and biotechnology companies and academic institutions in Q2–Q3 2004, those surveyed expressed many misgivings about turning over complex functions to third parties overseas (2). "Pharmaceutical companies are notoriously conservative on everything they do. They do not like to give up control of anything," notes Andrew Bonfield, chief financial officer of Bristol-Myers Squibb. Given pharmaceutical company executives' low tolerance for error, this lack of control, even when ceded to qualified personnel, is understandable. Mistakes can lead to regulatory delays, mask a drug's true effects, or potentially even harm patients, thereby opening up pharmaceutical companies to significant liability. Russ Bantham, general counsel and senior vice-president of the Pharmaceutical Research and Manufacturers of America, summarized the importance of data integrity in a comment that is applicable beyond clinical trials: "Misreading, losing, or misentering one piece of data could result in a multibillion-dollar lawsuit." Intellectual property protection is very high on the list of worries. "Clearly if you go offshore, the ability to protect your proprietary information such as patents is subject to much higher risk," says Maurice Greaver, president of Greaver & Associates, a management consulting firm. Compliance is another big concern. Vendors in emerging markets such as India and Asia have various levels of experience in satisfying rigorous and constantly changing regulations. Add to this the difficulty of managing relationships between pharmaceutical companies and offshore companies from another corner of the world as well as the potential for delays, and the challenges begin to look nearly overwhelming. Many of the most troublesome issues are beginning to be addressed. New legislation on intellectual property protection in India, for example, brings the country's intellectual property laws in line with those of the international community in accordance with the World Trade Organization. How these new laws will be enforced is under debate, and it will certainly take some time for them to become standard practice. In China, for example, the intellectual property situation is subject to interpretation. Pfizer's patent problem with Viagra is one high-profile example. The Chinese government revoked the patent in 2004, claiming the company had not adequately shown that Viagra was worthy of patent protection (Pfizer has appealed the ruling). The Chinese government also is enacting laws and regulations to curb the theft of intellectual property, however. During the past two years, Chinese courts handled more than 1700 intellectual property violations, and the government established a work group to address the issue. With the enforcement of intellectual laws a key issue, these moves don't immediately resolve the intellectual property problems, but they are a step in the right direction. Of course, many risks remain, and it is imperative that pharmaceutical companies develop a detailed plan for avoiding or actively managing them. (continued)