Outsourcing: do more with less!

Outsourcing: do more with less!


Some time ago, it was believed that the pharmaceutical industry would not be affected by an economic crisis. However, this is not longer the case. The deepening of the global economic crisis has significantly reduced end consumer purchasing power and is leading to increased competition between producers and the price of goods or services and effectively reducing their costs is more important than ever. This is driving all market players, including pharmaceutical companies, to find ways to optimise internal company costs and improve efficiency. One option or solution for improving business is to concentrate financial and human resources on  the company’s long-term, strategic processes, for example R&D, and to outsource less important, non-core processes to companies specialised in effectively providing a specific service.

Why choose outsourcing

Outsourcing became popular in many sectors in the 1990s as a way to cut costs. Due to the high level of confidentiality required, outsourcing was slower to take hold in the pharmaceuticals sector. However, the global economic crisis has forced companies in the sector to look for long-term solutions in order to stay competitive and face changes in the business environment.

The lengthy process of developing a product, constantly rising manufacturing, equipment and marketing costs, and increasing quality and regulatory requirements can all delay a product’s entry into the market, which is critical for efficiency in pharmaceutical companies.

By evaluating its processes and outsourcing those requiring big investments or specific knowledge, a company can concentrate its financial and human resources on long-term development and strengthening competitiveness in strategically important areas such as R&D and marketing.

On a global scale, the number of outsourcing service providers in the pharmaceuticals industry has grown significantly, with their growth spurred in recent years by lavish funding for research and new product development. Unfortunately, many of these firms have little experience in providing these services and they do not have an established reputation or references, and furthermore, the number of orders has shrunk recently due to the sector’s financial situation, which is impacting on the financial stability of outsourcing contractors. Therefore, when choosing an outsourcing contractor, close attention should be paid to its operating indicators and level of experience.

Which direction to move in

For the purposes of cost optimisation, under the impact of globalisation it is becoming increasingly popular to locate a company’s processes or to buy services/goods from low cost countries. Western companies are mainly seeking manufacturing and research outsourcers in low cost countries with sufficient human resources and low wages. Until now the most popular countries have been China, India, Vietnam, Indonesia and Mexico. Studies show that these markets will continue growing, but when choosing a service provider in one of these countries the potential gains must be weighed up against the potential risks such as protection of intellectual property, compliance with quality standards, geographical distance, and cultural and language barriers.

Of late, Eastern European countries have been especially active in the sphere of outsourcing, due to the fact that they have international standard service providers for highly competitive prices. The geographical location of Eastern Europe in combination with its historic background (links with Russia, the CIS and Asian countries), European business culture, language skills, international quality standards and strong scientific resources means that the region can offer creative and farsighted business solutions for still very reasonable prices.

This is especially attractive to medium sized Western European firms that prefer to do business on a European scale.

The Grindeks success story

Following the break up of the USSR in the early 1990s, many post-Soviet (and now EU- member) states were forced to reorient themselves from the Soviet scale to the priorities of a small country. The Latvian pharmaceutical company Grindeks, an Eastern European success story that will be discussed further on in this article, emerged from the political and economic turbulence of the Soviet collapse by restructuring its operations and management structure, adapting to the market economy and gradually strengthening its position in the Latvian and Baltic markets while retaining its place in the Russian and CIS markets.

Grindeks is the leading pharmaceuticals manufacturer in the Baltic States, with many years of experience in researching, developing, manufacturing, registering and selling active pharmaceutical ingredients as well as original and generic products in over 40 countries. Grindeks is a vertically integrated enterprise with all the resources required for in-house accomplishment of the whole product development cycle, from initial research of drugs to the registration and sale of finished products.

An equally important factor is the geographical location of Latvia, the home country of Grindeks. Latvia is a bridge between Europe and Russia, which means savings on logistics costs for shipping goods from one side to the other.

Some might say that someone claiming to be able to do everything can actually do very little. However, the success of Grindeks is shown by its dynamic growth and financial results. In the last six years, the company’s turnover has almost trebled, from 27.7 million euros in 2003 to 88.4 million euros in 2008.

Some characteristics of Grindeks

  1. Vertical integration of processes ensures product from A to Z using the company’s own resources.
  2. Technological infrastructure – in terms of modern equipment Grindeks rates among TOP international company.
  3. Generic base brand products – since we also make generic products, we produce qualitative original products using mid-range cost services and raw materials. In terms of resources, Latvia and the Baltic Countries are amongst the cheapest in the EU.
  4. Scientific links, both directly and in collaboration with Latvian scientists as well as through traditional ties with the post-Soviet scientific community whose knowledge and skills have never been doubted by anyone.
  5. Broad specialisation, know-how and flexibility

The most significant factors aiding the successful development of Grindeks

  • Achievement of the highest international quality standards (GMP, GLP, ISO 9001, ISO 14000) affirmed by the FDA, TGA, the Latvian State Agency of Medicines, LATAK, APIC and inspections by other bodies
  • Extensive know-how and experience throughout the product lifecycle – R&D, marketing, manufacturing, registration and sales
  • Experienced and knowledgeable staff
  • Up to date technology
  • Quality assurance in accordance with international requirements (modern equipment and procedures)
  • Close traditional scientific and industrial ties between Latvia, Russia and the CIS countries
  • A stable sales network in the Baltic States and CIS countries, cooperation partners in Europe and other regions.

This means that Grindeks can offer a full spectrum of high quality services not only to meet its own needs, but also for other companies at a reasonable price. Currently, Grindeks’ full spectrum services, from API development to finished product manufacturing and distribution, are used by the multinational generics firm Arrow. We are this company’s contract manufacturer for Zopiclon tablets that are exported to Canada. Grindeks’ clients also include GDL (USA), Taiho (Japan), Mylan SAS (US), Eurovet AH (Netherlands) and others.

Which processes should be outsourced

In the pharmaceuticals industry, the usual practice is to outsource a company’s standard processes which are not critical in terms of knowledge transfer. These are most commonly standard production processes, but other processes can also be outsourced, including R&D, registration, documentation development services etc. Another option is one-stop-shopping, wherein product development from A to Z is given over to a single contract service provider. However, more often companies choose to diversify risk, for example by outsourcing API manufacturing to one business partner and FDF production to another. There are many way of outsourcing and choosing the right model is a strategic decision for every company.

Contract Manufacturing Outsourcing

Choosing a reliable contract manufacturer can have a positive impact on a company’s cash flow, because by optimising inventories of raw materials and finished products the company does not have to make major investments in maintaining infrastructure or purchasing technology, and it can save on logistics costs.

Contract manufacturing helps bring products to market faster, because companies specialising in contract manufacturing usually perform product development, manufacturing, packaging and delivery within a firm timetable in accordance with the JIT system and GDP requirements.

Contract manufacturing of various volumes is possible depending on the client’s needs

  1. Full spectrum or vertical integration – from API development and manufacture to the development, manufacture, packaging and distribution of finished dosage forms.
  2. API manufacturing – production of substances only including development of registration documentation (ASMF).
  3. Development and manufacturing of finished dosage forms – development of finished dosage form technology, product manufacturing, validation of the manufacturing process and analysis methods, development of drug registration documentation (CTD, eCTD format in accordance with EU requirements, as well as drug registration documentation in accordance with CIS country requirements).

When choosing a contract manufacturer, it is important to evaluate its experience and capabilities. How long has the company been operating in the field, and with what dosage forms? Does its manufacturing meet GMP standards? What equipment does it have? How does the process management and oversight work? Does the firm have any references? These are just some of the important manufacturing-related issues to address. Just as vital for long-term cooperation are the company’s financial indicators. If your chosen contract manufacturer demonstrates dynamic growth and stable financial indicators, this affirms its financial independence and it will most likely be a reliable partner.

Grindeks has extensive experience as a manufacturer of a broad spectrum of pharmaceutical products, from small scale API production for clinical studies to manufacturing finished dosage forms including tablets, capsules injections, syrups and ointments. Striving to meet the highest international standards, Grindeks is constantly investing in modernising its manufacturing infrastructure and technologies. In 2009 the company opened a new finished dosage form plant with an annual capacity of 1.5 billion tablets and 500 million capsules that meets world pharmaceutical industry standards. The manufacturing processes at the plant are managed in accordance with Good Manufacturing Practice and ISO quality standards. A D class cleanliness level is maintained and modern, high capacity machines are installed. A sophisticated automatic control system regulates the microclimate, manages the technical engineering systems and other manufacturing processes and significantly reduces energy consumption.

The Grindeks API plant covers an area of 10 000 m2. Reactors with volumes ranging from 100 to 4,000 litres produce international quality standard API for both the Grindeks finished dosage form plant and export customers. A modern analytical scaling laboratory began operating in 2007, opening up the potential to research new products and manufacture small batches of niche products. It is currently unique in the Baltic States and one of the few of its type in Eastern Europe as a whole. The Grindeks API plant is being constantly upgraded and expanded, and the company has all of the resources required for contract manufacturing.

Contract Research Outsourcing

Under the impact of globalisation, significant competition has developed in the field of contract research. However, the economic crisis has brought changes to this sphere as well. As the volume of research funding has fallen, there has been a significant reduction in the number of research projects and orders. Currently the pharmaceutical giants are choosing to invest resources in projects that are already underway or nearing completion, while new ideas and projects in their infancy are being put on the backburner or cancelled altogether.

Eastern European companies and scientists can also provide solutions in this situation. For example, Latvia can be proud of its high class scientists, the country’s institutes and universities are very well equipped, yet at the same time the services offered are still cheap in the European context.

Latvia’s Grindeks employs professional researchers who can, for example, offer to conduct patent extension feasibility studies for brand-name products to extend the patent period for products nearing their patent expiry. Grindeks cooperates successfully with Latvian scientists and research institutes as well as foreign pharmaceutical firms on various projects researching and developing new ingredients.

In the API sphere, Grindeks can offer API manufacturing to brand-name companies for clinical studies in accordance with cGMP standards and the client’s specific requirements, utilising world class technology in a European context and at a reasonable price.

In addition to the know-how within the company itself, Grindeks can also draw on a tradition of close cooperation with scientists and researchers in Latvia, Russia and the other CIS countries. Enormous investments were made in science during the Soviet era to develop new products. If a brand-name company has an empty product pipeline, Grindeks can offer cooperation with Russian and CIS scientists to rejuvenate some of the many Soviet era innovations with huge potential.

Outsourcing registration services

Economic forces have an immediate impact on a particular sector, while political decisions have a longer term effect. For example, different drug registration, manufacturing etc. regulations in EU and other countries mean that companies must be flexible and able to adapt to the laws of each country.

Entering a new market usually requires careful research because the slightest mistake or inaccuracy in product registration documents or packaging can significantly delay the product’s coming onto the market. Outsourcing registration services is another way to effectively save both time and money.

Of course, a company wishing to enter a new market can try to learn the legislation of the respective country, adapt its product documentation files accordingly and perform the registration procedure using its own resources. However, an equally good and possibly more sensible solution would be to outsource these services to a firm with many years experience working in the respective market, which monitors changes in it and is aware of all relevant factors.

Registration services that could be outsourced include

  1. Development of packaging in accordance with the respective country’s legislation.
  2. Conducting readability tests of usage instructions.
  3. Translation and localisation of drug registration documentation for the respective market.
  4. Full development of drug registration documentation (in CTD, eCTD format in accordance with EU requirements as well as development of drug registration documentation in accordance with CIS country requirements) and registration, process management and coordination.

For example, the Russian market is huge, with over 142 million inhabitants. This is attractive to many Western European companies, but at the same time they are hesitant to enter these markets because of a lack of knowledge of local legislation, contacts or language skills, and they fear differences in culture and mentality. Grindeks has a large sales network in Russia and other CIS countries, deep local market knowledge and all of the resources required to perform qualitative translation and adaptation of CTD format documentation in line with local laws, develop packaging and user instructions, and perform product registration in these markets.

Why not choose a reliable, experienced company as a bridge between east and west?

It’s your decision!

During the global economic crisis, when companies in all sectors are feeling the ground moving under them, the winners are likely to be those who are able to radically change or adapt their business processes in line with the trends of globalisation. Through long-term planning and outsourcing processes requiring big investments of money or time or specialised knowledge, a company can significantly optimise its financial, time and human resources. This can all have a positive impact on company cash flow, by reducing product costs and time to market.

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