Asia A Pharmaceutical Haven

Running head: ASIA, A HAVEN FOR U.S. PHARMACEUTICAL COMPANIES

Asia, a Haven for U.S. Pharmaceutical Companies Outsourcing

Abstract

Outsourcing is the concept of taking ones internal company functions and paying an outside firm to handle them. The overall Increasing costs in drug development and regulatory challenges in the U.S. have driven U.S. pharmaceutical Companies to look to India and China as viable alternatives for parts of their drug development processes. Some initial uncertainties like language/cultural barrier, ethical and Intellectual Property issues stall the outsourcing process. However, other benefits like overall cost savings especially in R&D and clinical trial, cheaper skilled labor and increased turn around time for drug approval encourage outsourcing. There is increased evidence that suggests that Pharma outsourcing to India and China is thriving and will continue into the future.

Asia, a Haven for U.S. Pharmaceutical Companies Outsourcing

Outsourcing is the concept of taking ones internal company functions and paying an outside firm to handle them. Outsourcing enables a company to save money, improve quality, or free company resources for other activities. Outsourcing started in the data-processing industry and spread to other areas, including telemarketing, call centers and most importantly in the pharmaceutical industry for both research and manufacturing. Pharmaceutical companies outsource their R&D, manufacturing and most importantly their clinical trials to their two main destinations, which are India and China. Besieged by ever-increasing cost pressures and regulatory challenges in the west, the rise of India and China as global economies presents immense opportunities for the pharmaceutical industry. The cost of bringing one new molecule into the market amounts to USD 800 million and the European Federation of Pharmaceutical Industries and Associations (EFPIA) estimates that, on an average out of 10,000 molecules developed in laboratories, only one or two will successfully pass all stages of drug development and be commercialized (Pharma Industry news, 2005). So the pharmaceutical companies looking for effective solutions, tend to outsource to low-cost developing countries, thus minimizing the higher cost associated with R&D efforts in the west. In spite of the numerous benefits of outsourcing, there are few uncertainties that need serious consideration when formulating the outsourcing strategy to India and China.

Uncertainties of Pharmaceutical Outsourcing

India and China have increasingly become strong competitors in the outsourcing of pharmaceutical industry research for American pharmaceutical corporations. In this area of our research, we have documented the uncertainties that could serve as a deterrent to pharmaceutical outsourcing. One issue of concern according to Nundy and Gulhati is regarding the Drugs Controller General of India (DCGI) which is the Indian equivalent of the U.S. Food Drug Administrator (FDA). The office is understaffed and lacks any medical accreditation to conduct reliable clinical research studies, and yet the studies continue without government intervention. This raises legitimate concerns regarding cultural differences on the part of U.S. pharmaceutical firms outsourcing work to India (Nundy, S. & Gulhati, C. M., 2005).

In addition to cultural differences, there are key ethical concerns on the part of U.S. pharmaceutical companies. For example, Nundy and Gulhati reported that the hundreds of women being used as test subjects were poor, illiterate, rural women, and the research was conducted without regulatory approval from the government of India. The exploitation of people for profit poses ethical standards to be addressed. This exploitation substantiates the hesitation on the part of U.S. pharmaceutical firms. Furthermore, the fact that most, if not all of the Indian test subjects are not able to afford the medicine when offered to the public, is another disturbing ethical dilemma that U.S. pharmaceutical firms consider before outsourcing its clinical studies (Nundy, S. & Gulhati, C. M., 2005).

Over the past 2 years according to Paddison, White, and Cruickshank, Chinese courts have scrutinized and held up more than 1700 intellectual property (IP) violations. These actions do not necessarily resolve the issues that surface, but does slow down the I.P. process to an unproductive pace. U.S. pharmaceutical companies are looking at this delay and become concerned of the effects it may incur (Cruickshank, C., Paddison, C. & White, C., 2005).

One high profile example of IP concern is that of Pfizer's patent problems that occurred in 2004. The Chinese government revoked the IP rights of Pfizer's product, Viagra. Due to mistakes in areas of interpretation, China claimed that Pfizer had not adequately shown the worthiness of Viagra in order to comply with the patent rights, therefore releasing China from any proprietary restrictions and royalty rights to Pfizer. To this date, Pfizer has appealed the ruling (Kermani, F., 2004).

Major concerns with regard to differences in cultural values and native language, have come into question regarding outsourcing. Just recently Dell Corporation was forced to pull out of India because of a mass protest initiated by American consumers. For example, when calling for technical assistance, the customer was unable to understand the Indian personnel clearly enough to receive the desired help because even though the technician spoke perfect English, he or she still had a strong Indian accent which interfered with smooth communication.

U.S. pharmaceutical corporations are understandably concerned with the possible language and cultural barriers that exist. They have real examples of miscommunication and the problems it has caused. In light of the communication barrier between Dell customers and Indian technicians resulting in Dell pulling out of India, a language and understanding barrier must be bridged between the two, for successful and productive outsourcing. Added to the list of uncertainties of pharmaceutical outsourcing is the case of misinterpretation on China's part in the Pfizer, Viagra patent rights infringement that is still unresolved, costing Pfizer large amounts of money in an effort to protect their proprietary rights and royalties.

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