Pharmacaeutical Outsourcing - Another Shot Across the Bow

I admit freely that I have been fascinated by the topic of outsourcing in the life sciences sector, especially the pharmaceutical group. (Larry actually thinks it’s unhealthy, but, I think he worries too much.) So, when the New York Times (NYT) recently published a report (http://www.nytimes.com/2009/02/19/business/19clinic.html?emc=eta1 ) discussing an article (http://content.nejm.org/cgi/content/full/360/8/816 ) in the latest issue of The New England Journal of Medicine (NEJM) about the outsourcing of clinical trials offshore and the issues that are raised by this.

The NEJM and the NYT focus more on the ethical and safety concerns raised by these practices. I won’t rehash what they wrote, Natasha Singer’s article in the latter is an excellent piece of reporting and when you have the time, read the original NEJM article. Despite being written by several medical academics at Duke University, it’s a very readable article for the layperson. (I offer myself as proof.)

I want to focus on the economic and business aspects of this practice. (OK, I admit it, I’m a capitalist.) While there are some questions about the statistics used, there is definitely a trend to move clinical trials offshore. Despite protests to the contrary, I suspect that pharmaceutical companies feel that there is less FDA oversight and other forms of government regulation when they move offshore. Also, some of the countries selected may prove to be somewhat less litigious than American trial lawyers tend to be.

Lower costs, the perennial reason for outsourcing and offshoring is certainly another good reason for doing so.

But, what are the long term implications for the US pharmaceutical industry? Once again, we see a key US business differentiator that contributed to past American supremacy in the global drug industry being packed up and sent offshore. Besides the jobs lost, the early access to innovative treatments lost to Americans and the potential to enhance these differentiators are gone.

The major long term consequence is that US pharmaceutical manufacturers are assisting in the development of future competitors. The FDA should also stop and think about this for a bit. Once the genie is out of the bottle and new drugs are being developed, tested, and marketed abroad in a big way, the FDA is not going to be able to control policy as they have in the past.

In my recent blogs, I’ve been talking about changes in the life sciences sector and their long term implications. In particular, I’ve been hammering Big Pharma about the similarities to Big Auto. We’re seeing more evidence with this NEJM article. By itself, it’s not earth shattering. But, taken with everything else that’s going on, the future doesn’t look good for Big Pharma.

As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.

Contributed by Guy de Lastin