Aparna Singh (AS), Program Manager for the Chemicals Materials and Foods team at Frost & Sullivan India, recently caught up with Mr. Steve Fishwick (SF), Projects Group Director, AstraZeneca at the Frost & Sullivan’s Global Life Sciences Summit 2006 at Goa, India. He was one of the key speakers at this premium summit.
Mr. Fishwick has held various positions in process chemistry, chemical production, and central operations in the 28 years that he has spent with ICI, Zeneca and AstraZeneca. For a major part of the last 15 years of his career he has been closely involved with outsourcing, initially as a Project Manager and now as Project Group Director. Since 2003 he also has the specific responsibility for developing AstraZeneca’s sourcing from India and China. In the interview below he gives insights into this sector.
AS: Holding responsibility for AstraZeneca’s outsourcing from India and China, can you tell us broadly about AstraZeneca’s plans for this region? How do you see India and China in your overall strategic plans? What are the areas you are looking at, and as a corollary to that, perhaps not looking at, at this point in time?
SF: My area of responsibility is entirely around the Chemicals, and the API outsourcing area. Within that scope, we are open-minded to talk about any of the types of outsourcing related to that, both here and in China. So we’re not excluding anything. At the moment, the reality has been that we’ve focused more on the older products, but that has been really a conduit into the Indian market rather than a strategy. And we’re quite prepared to look for intermediates for New Chemical Entities and for products under development. So the full range of types of chemical outsourcing is possible.
AS: How large a contributor are these areas to your overall outsourcing?
SF: I would say relatively small, but growing. India is ahead of China in our current position. We see potential in both to support our long-term outsourcing strategies. I don’t have exact figures, but I would be able to say that they contribute not more than 10 percent currently. It’s definitely going up, though I don’t have any numerical targets.
AS: Oncology and Cardiovascular drugs are both important areas of operation for AstraZeneca. Can you tell us a little more about the new developments in these areas that the company is working on?
SF: Yes, I can’t go into any specific developments in these areas as far as R&D is concerned, but what I can do is contrast these two therapy areas – if you look at Oncology products, I am generalizing here, but typically these are high potency, small volume – they have major challenges around handling the products very often. This is in contrast to cardiovascular drugs, which very often are in much higher volumes. So, the drive for AstraZeneca to come to India or China, from a cost perspective, is much higher for cardiovascular products than it would be for oncology products, because, the potential total spend on APIs and intermediates is much higher. At the moment, we are outsourcing more in the cardiovascular area than for any other therapeutic area, and I would imagine that this trend will continue. We’re not dismissing any of the others, but efficiencies from India and China are much higher when you have high volume products such as cardiovascular drugs.
AS: Does the company have in place any measurement systems to evaluate the cost benefit of outsourcing activities? What have been the company’s experiences in different areas?
SF: There are two aspects to this. Firstly we have a clear strategy, that we don’t manufacture raw materials, or starting materials. So any such raw material will be outsourced, that’s a given. Obviously we will look for the best value outsourcing, not just based on cost, but also on other criteria such as security, technology etc. For intermediates, we will look at the options that we have, either in-house or externally, and then we will build a business proposal, on a case-by-case basis. And that will depend upon the fit – If there is a good fit in any of our existing facilities, perhaps we may manufacture in-house, but also, we’ll do the financials on whether it makes more sense to outsource. So it’s very much a case by case basis.
If it’s an older established product, it would be very much financially driven; also, whether we need the capacity for something else, what’s the cost of outsourcing, long-term revenue-cost estimations etc. If it’s an early stage raw material for intermediates, we know we will outsource, we just need to decide where. Post supply, we have a number of performance indicators, which we use to evaluate all our suppliers, and not just cost, but delivery performance and many other areas. It’s a detailed measurement process.
AS: Could you tell us a little more about China, in the area of intermediates, how are you looking at Chinese companies as potential suppliers? Can you tell us more about the companies plans for China, and any strategic alliances you are looking at in that market?
SF: We go to China with the same open mind that we come to India. Our experience as been that, at the moment, they are significantly less well developed, in terms of any GMP manufacturing for intermediates. Also, many of the companies in China tend to be very ‘product-type’ specific. So they may be antibiotic producers or steroid producers, in the same way as Indian companies started out. But here, I think companies have a broader technology base. So, our intentions in China are the same as in India – to find the best value proposition that we can, the reality at the moment is that the Chinese industry is somewhat behind the Indian industry in terms of sophistication. But, it’s fair to say as well, that it’s moving at an extremely fast pace.
AS: Within the intermediates space, are there a lot of custom services or customized intermediates happening, or does the market in India still largely comprise catalogue products?
SF: My group is entirely custom. Everything our group manages is made specifically for us, or at least perhaps capacity would have to be increased for us. Our projects usually involve some technology transfer of our own process, or at the least, some analytical methodology. So, our group doesn’t buy any commodities. To give you the dimensions, my group has roughly a 100 projects, and 60-70 of these would be development projects.
AS: Which sphere within the contract services area do you think Indian players are excelling at? Which are the areas where you would say further work and improvement is required to compete in the global market?
SF: I am not sure technology is an issue – by and large, I think you have a pretty wide base of technologies available here. I think there is still perhaps a cultural difficulty, with open book costing. The way that we work with our preferred European suppliers is that, when we go out to ask for a proposal, we expect very high visibility in terms of costs, including margin. Cost is not always a deciding factor, but visibility of true cost is an important factor to us. And then we can balance the cost with other criteria. With Indian companies, we find that there is still an element of negotiation early on and perhaps pitching the initial offer higher than it could actually be accepted. That gives us big problems, because effectively we eliminate the supplier, before we get into any detailed discussions. For the very high turnover rate that we have for many of our projects, we haven’t got time to get into detailed negotiations early on. Its different ways of doing business, I would think. We need to break down some of those ways of working, really. With the suppliers in India whom we have identified as partners, we run workshops to help them understand how we work, and vice-versa.
AS: In terms of scalability for moving from development to commercial scale, what has been your experience in India?
SF: Our experience is limited, but from the cases we’ve seen and the experiences we’ve had, there is no reason to believe that it should be easier or more difficult than doing it in Europe or anywhere else in the world. Indian companies have a lot of good scientists, and the ones that we choose to work with have the range of capacities we need, lab-scale, kilo-lab, pilot and commercial scale, so we would expect them to scale up as required, so we’ve no reason to be particularly worried in that area. We always work with a long-term perspective, for any project that we get into, that this would be a long-term supplier for commercial scale. Of course, many projects may never make it to that stage, but the intention is always to develop a long-term supplier.
AS: Since East European countries also offer a cost-competitive manufacturing environment, with perhaps some advantages of geographical proximity, do you see this region as a possible threat to Asian companies?
SF: Within AstraZeneca, I think it’s fair to say that we’ve done very little in Eastern Europe, for chemical intermediates or API sourcing, virtually nothing. I don’t know whether we are unique in that – we took a decision some years ago, that we would focus on India and China. To be blunt, there are plenty of suppliers available in these two territories, which means that we don’t need to go to Eastern Europe. In my opinion, there is no great advantage in going to, for example, Poland, as opposed to India. We’re just talking about an extra few hours on a plane! It doesn’t make any difference. What we’re looking for is an entire package – to my knowledge, costs in Eastern Europe are rising. We have no reason to believe that standards are much higher than India, so, it would just dilute our focus. We’ve only got a certain amount of business, and we’ve only got a certain number of people managing it, so we can’t do the entire world! So it’s not an area of the world where we have any experience, or any real plans to explore.
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