Healthy Skepticism Library item: 11470
Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.
Publication type: news
Pagnamenta R.
AstraZeneca to outsource manufacturing
The Times (London, UK) 2007 Sep 17
http://business.timesonline.co.uk/tol/business/industry_sectors/health/article2468741.ece
Full text:
AstraZeneca, Britain’s second-largest pharmaceutical company, is planning to outsource all its drug manufacturing activities within ten years.
David Smith, AstraZeneca’s executive vice-president of operations, said that the company aimed to become a pure research, development and marketing organisation.
“Manufacturing for AstraZeneca is not a core activity,” Mr Smith said. “AstraZeneca is about innovation and brand-building . . . There are lots of people and organisations that can manufacture better than we can.”
Mr Smith, who is leading a restructuring drive designed to cut costs and improve profitability before the expiry of patents on key drugs, said that the priority would be to outsource all of AstraZeneca’s manufacturing of active pharmaceutical ingredients – the basic chemicals used to formulate conventional medicines.
He said that it would be possible to find significantly cheaper contract manufacturers, many of which would be in the Far East. “We are looking to access China and India in a much more meaningful way,” he said.
Later, the company would seek to strip out and outsource more sophisticated manufacturing and logistics activities.
Mr Smith said that the transformation would take several years to complete because of complex regulatory hurdles.
At present, AstraZeneca has 27 manufacturing sites in 19 countries. Since February, the company has said that it plans to shed a total of 7,600 jobs – or 11 per cent of its 66,000-strong global workforce, but Mr Smith indicated that this would be the start of an even more fundamental transformation of the business.
Looking to AstraZeneca’s ultimate aim, Mr Smith said: “We would own the IP [intellectual property], the research, branding and the quality and safety issues . . . but [everything else] would be outsourced. The idea is to take out as many stages as you can.”
The company is set to lose 38 per cent of its revenue over the next five years because of the expiry of patents on key drugs. They include Arimidex, a breast cancer drug with annual sales of $2.2 billion (£1.09 billion), whose patent ends in 2010; Seroquel, a schizophrenia drug with sales of $4.7 billion and patent expiry in 2011; and Symbicort, an asthma medicine with sales of $3.7 billion and a 2012 patent expiry.
The majority of cuts announced so far are in the group’s manufacturing and supply-chain operations. Astra-Zeneca’s research unit, which employs about 12,000 people, is expected to remain largely unscathed.
Mr Smith, who previously worked for Estée Lauder, the cosmetics group, and Timberland, the clothing group, said that he wanted to follow the example set years ago in the fashion, electronics and carmaking industries by shifting away from the traditional model of a vertically integrated pharmaceutical company controlling everything from research to manufacturing and logistics.
He said that the pharmaceutical sector had been among the most conservative global industries in its attitude towards manufacturing and the supply chain, in part because of a history of high profit margins and stringent industry regulation. “We are going to go through a model of outsourcing the back-end . . . we don’t see manufacturing as core,” he said.
Other big pharmaceutical companies, such as Pfizer, the huge American group, have also begun outsourcing manufacturing recently. The company, which is the world’s biggest drugmaker said last week that it was shedding 420 jobs at its British factory, at Sandwich, Kent, and that it would opt to outsource some functions.
