By Daniel R. Matlis
Lately, I have been getting a lot of questions regarding the state of Outsourcing in Life-Sciences. Most recently, I shared my thoughts during interviews with Medical Product Outsourcing and InTech Magazine.
When I started working in Life-Sciences, nearly two decades ago, going offshore meant moving operations to a company owned facility in Puerto Rico. This was the heyday of Section 936. Established in 1976, Section 936 of the Internal Revenue Code provided U.S. firms operating in Puerto Rico with tax-free income. Lower wages and the security of being home (Puerto Rico is a free associated state of the US) made the island a hub of Life-Science activities.
By the mid 90’s, Life-Science Companies began moving manufacturing operations to Mexico. The shift was a consequence of a sunset provision in Section 936 and the ratification of the North American Free Trade Agreement (NAFTA)
In the past five years, the trend to offshore manufacturing has evolved into outright outsourcing.
Life-Science Executives tend to a pretty conservative bunch. This is not surprising given the highly regulated nature and high risks associated with Life-Science products. Consequently, it is not surprising that the outsourcing shift in our industry follows decades of successful outsourcing across industries such as consumer electronics, high-tech and automotive. This cross industry success has paved the way for the rapid uptake and growth of outsourcing in Life-Sciences.
In fact, Life-Science outsourcing has grown from working with certified suppliers of basic raw material, excipients, packaging and components, to comprehensive contract manufacturing, clinical trial management, and product research, development and engineering.
Recently, a number of leading Life-Science companies made groundbreaking announcements around their outsourcing initiatives:
- Pfizer aims to outsource 30% of its manufacturing, largely to Asia.
Source: The Wall Street Journal, November 30, 2007 - AstraZeneca has begun to outsource production of some of its bestselling medicines to low-cost manufacturers in the Far East.
Source: Times of London, October 22, 2007
Although much of the recent outsourcing buzz has focused on China, so have some of the outsourcing problems.
- A Chinese Supplier could be the source of a potentially deadly allergic reaction experienced by hundreds of U.S. patients infused with Baxter International Inc.’s blood thinner heparin.
Source: Chicago Tribune February 14, 2008 - FDA Advises Consumers to Avoid Toothpaste From China Containing Harmful Chemical
Source: FDA, June 1, 2007
To make it clear, geographic location has little to do with product quality. It does not matter whether you outsource to the India or Indianapolis, People’s Republic of China (PRC) or Puerto Rico (PR). What’s important is that you ensure the presence and enforcement of tight controls over critical to quality parameters (preferably of a proactive, not reactive nature) at your outsourcing partner. It is critical that license holders ensure that outsourcers have in place – and can provide documented evidence of – systems that ensure product quality.
Outsourcing is here to stay, and although its benefits are relative, one thing is certain: outsourcing is not a strategy for “Liability Transfer” or “Risk Management”. The fact is that there is no such thing when it comes to FDA regulations or the court of public opinion. If your name is on the product, you are ultimately responsible, regardless of who makes it for you.
When outsourcing, “Trust but Verify” is not just a saying but a way of life.