Pharma Outsourcing: Industry Can't Win for Losing

(MoneyWatch)  Given all the trauma the drug industry is currently going through, you can hardly blame executives for cutting costs wherever they can. Unsurprisingly, outsourcing is a big part of Big Pharma's repair toolkit these days. Pfizer, for instance, says that 17 percent of its manufacturing and active ingredients are currently outsourced, and that it plans to boost that to 30 percent in the next few years. Merck is going even farther with plans to outsource 35 percent of its manufacturing, ingredients, packaging and the like by 2010.

But not all cost cuts are created equal, and with the memory of tainted Chinese heparin still fresh, it was probably only a matter of time before politicians jumped in with uncomfortable questions. Jump in they now have, with Sen. Sherrod Brown, an Ohio Democrat, leading what is rapidly turning into a new probe of pharmaceutical outsourcing:

In explaining his reason, Brown cites a January 9 interview with Merck's Richard Spoor, senior vp of global procurement, who said the drugmaker is "moving in the direction of externally sourcing approximately 35 percent of the overall manufacture of active pharmaceutical ingredients, intermediates, formulated pharmaceuticals, sterile products, vaccines, and packaging by 2010..This would represent a two-fold increase over what we currently source from external manufacturers."

So Brown wants to know the mechanism Merck uses to track the chain of custody for each ingredient in its drugs and biologics; procedures used to ensure every facility in the chain operates in a manner consistent with its quality and safety standards; the percentage of its external sourcing that has been contracted out to US-based companies; the top ten countries to which it outsources by the percentage of business outsourced; and estimated average and median wages paid at companies producing active pharmaceutical ingredients for Merck, according to a letter sent Merck.

It's far from clear where Brown intends to take the issue, but absent much tougher FDA oversight -- which would, of course, push up costs further for embattled drugmakers -- it's hard to see how anyone can stuff the outsourcing genie back into the bottle.

Raw materials and drug factories aren't the only functions the drug industry is moving overseas as fast as possible -- a fair bit of drug research seems to be headed out of the country as well. Over at In the Pipeline, Derek Lowe has hosted an interesting discussion on research-outsourcing trends and their effect on U.S. scientists.