Pharmaceutical Outsourcing: Where Is the Work Going?

Last week we blogged about the growing trend in pharmaceutical outsourcing. When people hear the word “outsourcing”, many assume that means that work is being offshored. In the pharmaceutical industry, that’s true for only a small fraction of the work that’s being outsourced. This could change with time; the number of contract research organizations (CROs) based in Asia is rapidly growing.¹

This comes as no surprise considering the rigorous training process that scientists must undergo. The United States is flooded with foreign postdocs who come to work for five or so years, honing both their scientific skills and English language skills. When they return to their home countries, they are well equipped to establish contract research organizations. In an industry that is driven by cost-management, offshore CROs can do things cheaper; rent and labor are simply less expensive in many foreign countries than in the United States.

For some US-based CROs, this means establishing branches overseas to do some of the same work that is done in the United States for less, providing a lower cost option to those with tight budgets. A chemist in India has an annual salary of $20,000-$40,000, whereas a chemist in the United States earns $80,000 and up, per year.² Companies are maintaining scientific operations both in the United States and abroad, getting the work done that can be done overseas, for less.

How often is this happening? The United States and Europe still lead the outsourcing market, but Asia has been making gains in recent years.^{1, 2} The work that is most amenable to overseas outsourcing is clinical trials work, which can be done for less money in Asia, Eastern Europe, and Latin America. That more clinical trials require globalization plays into outsourcing this aspect of the drug development process.^3Drug production, especially of low-cost generics, can also easily be outsourced. However, offshoring this has backfired in the past, as was the case when Baxter outsourced heparin production and unintentionally sold a product contaminated with over-sulfated chondroitin sulfate, which caused more than 80 deaths in the United States before the product was recalled.⁴

Cultural barriers and differences in regulatory oversight have probably kept the flow of work overseas relatively modest. There is value, which is hard to put a price on, to collaborating with people who are physically close. It’s part of what makes biotech hubs, like San Diego and Boston, successful incubators for pharmaceutical companies. In fact nearsourcing, a term frequently applied to outsourcing near to the business location, is thriving in San Diego. Scientist’s Contract Research Map makes searching for CRO’s by geographical location a straightforward and easy process. We think that CROs will continue to thrive close to where the pharmaceutical companies are headquartered. But for some work, outsourcing overseas probably strikes the right balance between efficiency, cost, and return on investment.