The Rise of Contract Manufacturing in the Pharmaceutical Industry

Pharmaceutical companies are known for their tremendous investments into Research and Development (R&D) and testing.  Given the huge investment in the discovery and testing of new medications and pharmaceutical products, sometimes the manufacturing and logistical aspects of the pharma industry go unnoticed or under appreciated.

However there has been a new trend that is developing over recent years that essentially outsources the manufacture of pharma and other products to companies who specialize in manufacture.  Consumer goods do this in all types of ways, such as the popular “white-labeled” generic food products that you can find in any major supermarket.

Contract manufacturing pharmaceuticals goes a lot deeper than simply manufacturing products to have them sold under a different brand name.  As the name implied, there is a contract that is negotiated and agreed upon that specifies exactly what a company needs from its manufacturing partner.  These can be extremely extensive and include sensitive and competitive intelligence, often necessitating the use of stringest non-disclosure agreements (NDAs) and other measures to insure against industrial espionage.

Outsourcing is not the same as Off-Shoring

Contract manufacturing is by its very nature a form of outsourcing, since you are contracting with a 3rd party company to handle an aspect of your business.  However this is often misconstrued as “off-shoring”, which is the use of overseas or foreign companies that can get the job done as a much cheaper price due to lower labor costs or regulatory costs.

This is much frowned upon, especially with recent news about lower quality ingredients and practices in areas like China.  However it doesn’t mean that it doesn’t exist.  In fact, many of the products in over-the-counter medications are made in overseas countries, and it hasn’t hurt their ability to go to market effectively.  We will have to see how the future will affect this up and coming sector in the pharma industy.