The perception of Asian countries, notably India and China, as low-cost R&D locales is a major driver in the offshoring trend. Those countries have an abundance of scientific and technical manpower, and wage rates of their chemists and researchers are said to be 60 to 70 percent lower than the costs of similarly-experienced staff in the US or Europe.
Of course, wage rates are only a part of the cost equation: the quantity of resources required to obtain the desired output is the other key variable. The experience in the biopharmaceutical and IT industries has been that the quantity of resources required to get a project completed offshore is often much greater than what would be required domestically, thanks to differing levels of productivity, miscommunication, project management complexity, and sourcing overheads. The net cost may indeed be lower, but not by the degree suggested by wage differences.EXPANDING SUPPLIER BASE
The focus on costs overshadows other critical factors in deciding to source from Asia. In particular, it fails to account for the long-term attractiveness of Asian countries as markets for pharmaceuticals. This is especially true of India and China, which have total populations of one billion or more and burgeoning middle classes. The major biopharmaceutical companies realize they must build a strong local presence in those countries to remain competitive with indigenous biopharmaceutical companies, which are growing in sophistication, especially in India.
Another overlooked factor in the growth of offshore sourcing is the growing sophistication of the supplier base. According to FDA statistics, India has 75 manufacturing facilities that are compliant with US GMP standards; that's more FDA-compliant facilities than any country other than the US.
The abundance of qualified facilities is being driven in large part by the introduction of Indian biopharmaceutical companies into the US generics market as API and drug product providers. At the same time, companies whose business is primarily contract manufacturing, e.g. India's Strides Arcolab (Bangalore), are also achieving FDA standards. Strides Arcolab is becoming an important supplier of sterile injectable products for the US market, thanks to contracts with several major generics companies in the US market. It recently announced it will merge with Matrix Laboratories (Hyderabad), a manufacturer of small molecule APIs, to form a manufacturing company with total revenues of $240 million.
India's Biocon (Bangalore) is one of the world's largest biopharmaceutical companies, with revenues of almost $167 million in fiscal year 2005. The company develops, manufactures, and markets therapeutic drugs and industrial enzymes. It has developed a proprietary bioreactor technology and is building a commercial-scale mammalian cell culture facility to manufacture proprietary monoclonal antibody products.
Like many Indian bio/pharmaceutical manufacturers, Biocon also has moved to exploit the growing opportunities for contract research organizations (CROs) in India by establishing two contract subsidiaries: Clingene offers clinical research services, and Syngene specializes in discovery chemistry and early-stage process development services.
US-based biopharmaceutical companies wanting to source some of their requirements in India have several business models to choose from. They can work wth US-based companies that maintain capabilities in India, work through US-based agents, or work directly with an Indian company.