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Biotech firms outsource to Asia

Global credit crunch forces industry's Western leaders to look east to cut costs.

Laboratory personnel work at the new GlaxoSmithKline laboratory in Singapore, March 21, 2007. (Nicky Loh/Reuters)

SAN FRANCISCO — The global financial crisis has hurt biotechnology, an industry in which it can take a billion dollars and 10 years to create a marketable medicine. But a survey of worldwide industry trends suggests that the funding shortage hitting North American and European market leaders could benefit emerging biotech clusters in Singapore, India and China.

The cost advantages of outsourcing to these countries have made them appealing destinations for clinical trials and manufacturing and research facilities.

“As Western companies navigate an environment where capital is scarce, they are under increasing pressure to lower cash burn and contain costs,” Ernst & Young biotech consultants write in their annual “Beyond Borders” report. “This should lead to an increase in outsourcing of clinical trials and manufacturing to Asia.”

The 130-page report dwells mainly on the North American and European biotech firms, which combined accounted for more than 94 percent of the industry's $89.6 billion in worldwide revenues last year. Ernst & Young treats the outsourcing phenomenon at the tail end of its study in a section titled “Seeds of Change,” showing how the Western biotech firms that dominate the industry are shifting some operations to Asia.

Singapore is the “destination of choice in the region for manufacturing operations and headquarters,” the report says. The city-state is already home to bio-manufacturing plants for Genentech, Novartis and GlaxoSmithKline among others. Ernst & Young says seven new manufacturing facilities are expected to open this year.

Singapore has also made itself a hub for research and development, the report says. Among other successes, the U.S. pharmaceutical giant Eli Lily opened a $150 million research facility in Singapore in October 2008, in the heart of the financial crisis. In January, Abbott Pharmaceuticals opened an R&D facility in Singapore, its first in Asia.

Outsourcing takes a somewhat different form in India, which is making itself a destination for clinical trials, among other initiatives, Ernst & Young says. Human testing is the most labor-intensive part of the medical discovery cycle, requiring doctors, nurses and other clinicians to find and monitor thousands of test subjects.

The report says the Indian government is supporting efforts to “boost clinical-research outsourcing” with measures that include better monitoring of the trials to increase safety and confidence and streamlining regulatory processes to cut development times and costs.