THE HARBINGER

In 2007, three of the top ten pharmas announced plans to outsource manufacturing on an unheard-of scale. AstraZeneca is expanding purchase of semi-manufactured medicines and external manufacturing of APIs over the next five to 10 years. Bristol-Myers Squibb reported that it will use third parties as backup manufacturers, closing more than half of its 27 manufacturing facilities by 2010. GlaxoSmithKline plans to save approximately $1 billion through 2010 with a program likely to include outsourcing. Pfizer, which already outsources 15 percent of its manufacturing to Asia, aims to double that, saving some $2 billion a year.

THE CHANGE

In an age of generics, there's ample incentive to outsource production of low-margin goods to lower-cost manufacturers. Outsourcing could also be a way to improve time to market—a manufacturer that can shorten development time by 19 percent can save $100 million. When companies do not need to adjust their own workforce and operational capacity to fluctuating demand, they can concentrate on innovation and brand building.

THE IMPLICATIONS

Of course, relying on partners can be challenging. There's uneasiness, especially in the US, over the quality and safety of pharmaceuticals sourced in emerging markets. As manufacturing processes become more complex, drugmakers will be required to provide impeccable sources and guarantees. Legal liability will be the subject of increased scrutiny in an increasingly risk-averse environment.

The second issue is that contract manufacturers can turn the tables completely. A contract manufacturer for a major pharma could tout its quality and the credibility gained from the outsourcer to eventually put its own brand on packages. And the specter of challenges to intellectual property rights refuses to go away, despite recent progress in countries such as India.

The third issue concerns local market access. Multinational companies have been hindered in their attempts to invest in emerging markets where pharmaceutical consumption is predominantly generics. Since growth is coming increasingly from these markets, it's not surprising that major drugmakers are looking for new avenues to build businesses. Strong partnerships could provide the basis for closer commercial arrangements.

Lastly, there are growing political and economic concerns. For example, the research-based pharmaceutical industry remains one of the best-performing high-technology sectors in Europe. So if the move to outsource pharmaceutical manufacturing takes hold, political intervention may follow. Concern over jobs and trade imbalances may help to renew a dialogue between governments and Big Pharma on a more favorable basis than in recent years.

3. RIDING THE WAVE

Novartis and NICE Team Up

Big wave surfers must be able to predict how a wave will break. In order to stay ahead of the whitewater, they study wave dynamics and consult sophisticated surf forecasts based on data from ocean buoys and space satellites. This meticulous preparation is often what separates thrill from peril. Pharmas that are ready to ride the wave created by Health Technology Assessments (HTAs) must learn to predict how assessors will behave. They must understand what proof points assessors will require and use the science at their disposal to avoid "wiping out" when seeking the HTA's stamp of approval.

THE HARBINGER

In December 2007, Novartis announced a deal with the National Institute for Health and Clinical Excellence (NICE) in the UK whereby the two organizations will be partners in the design of a Phase III clinical trial. NICE will provide advice on evidence requirements in the areas of clinical effectiveness and cost effectiveness prior to Phase III clinical development.

THE CHANGE

NICE has become pivotal to the success of newly launched products on the strength of its guidance on cost effectiveness. Novartis hopes to provide NICE with the evidence necessary for an endorsement, and presumably to speed NICE's decision-making, which normally takes two years following marketing approval.

Impartial observers have asserted for years that relationships between stakeholders in the healthcare sector are inefficient and confrontational. In August 2006, a submission to the UK's Cooksey Review by the American Pharmaceutical Group (APG)—which represents the top ten US-owned pharmas that invest in the UK—recommended that "an earlier dialogue between NICE and clinical researchers could better direct research to ensure a satisfactory and speedy NICE appraisal." Novartis has taken the lead by starting dialogue at the clinical research stage.