Medicinal Chemistry Outsourcing to China:

With great interest in reading recent series of reports of Chinese chemistry outsourcing (C&EN, July 28, page 34), I feel we have been bombarded by offshoring, FTE and CRO (contract research organization) for last couple of years. It seems every industries are facing the choice to have some sort of business in China. Personally, not knowing too much about other sectors, but we all know that pharmaceutical sector outsourcing and direct investment in China are becoming so prevalent that everyone in the field has felt the impact, positively or not so positively by productivity enhancement and investment efficiency vs. loss of job opportunity for US domestic workforce and competitive pressure. The CRO business is booming, roughly counting, there are already a few hundreds such CRO that are operating in China. Several Chinese CRO firms saw their revenue exploded in just last few years! The trend will certainly continue and like anything else in life, this business may reach a plateau when the cost climbs up to certain percentage of US or West European level. At that point, let’s say in five years, the R&D executives would reconsider how effective the outsourcing will actually be. This could even be the reality sooner than we expected with rapid increasing of living cost, high employee turnover, new labor law and government’s resolve on urgently needed environmental law enforcement, which quickly translate into additional operating cost. Another significant cost is the managerial overhead from the parent company. The next real challenge, I think is that when China is gradually perfecting their intellectual property protection law and also effectively enforcing it, then the more logic thing for the pharmaceutical industry no doubt would be more direct R&D investment, build and operate their own research centers. With growing knowledge of drug discovery and development, especially brought by expatriates trained and worked in western pharmaceutical company, plus abundant low cost of scientist pool, a number of Chinese CROs have already started to move up the R&D value chain, providing more sophisticated services, such as in DMPK, toxicology and preclinical development. In the future, the productivity from these facilities will join the next wave of competition. Recent years we have seen some back flow of Western country trained scientists to these burgeoning CROs in China, this is a very encouraging phenomenon that whole pharmaceutical industry benefits. Like this country has benefited from huge influx of Chinese scientists in the booming 90’s, now both in China and in US, the industry benefits from these returnees at a newer level, not only from their scientific knowledge and skills acquired in the West, but more importantly, their broader leadership capability and cross cultural ambassador role they play. Therefore, I wholeheartedly believe these outsourcing opportunities in our business would be a win-win for everyone in the long run!