Courting Controversy?

AZ exec makes waves with outsourcing comments, company clarifies

By Joanna Cosgrove

AstraZeneca is in full-on spin control mode following a potentially tarnishing interview that asserted the pharmaceutical giant was getting out of the drug-making business. According the September 17 edition of The Times of London ran an article titled “AstraZeneca to outsource manufacturing,” which featured a key quote from Dave Smith, AstraZeneca’s executive vice president of operations, which sent shock waves through the industry: “Manufacturing for AstraZeneca is not a core activity.”

Mr. Smith, who is spearheading a company-wide cost-cutting effort, told The Times’ Robin Pagnamenta that AstraZeneca’s priority would be to outsource all of its API manufacturing to more cost-effective contract manufacturers located in the China and India, freeing the company to focus primarily on “innovation and brand-building.” The Times also reported that the company would also “outsource still more sophisticated manufacturing and logistics activities” in the future.

“There are lots of people and organizations that can manufacture better than we can. We would own the (intellectual property), the research, branding and the quality and safety issues . . . but (everything else) would be outsourced. The idea is to take out as many stages as you can,” Mr. Smith was quoted as saying.

According to The Times article, the transition to trim AstraZeneca’s 27 manufacturing sites in 19 countries would span decades due to regulatory red tape. It’s been previously reported that the company would scale back its manufacturing and supply chain operations by 7,600 jobs — roughly 11% of its 66,000-person workforce, however the outsourcing cuts Mr. Smith alluded to would be above and beyond those initial lay-offs.

At the center of the cost-cutting are unavoidable revenue losses that will occur over the next five years as some of the company’s lucrative drug patents are set to expire. These include its breast cancer drug, Arimidex, its schizophrenia drug Seroquel, and its asthma drug Symbicort.

When The Times article was published, it was picked up on global newswires, which no doubt set AZ’s phones a-ringing. The company quickly went into spin control mode, issuing a formal statement that deemed Mr. Smith’s comments were taken out of context: “The purpose of the interview was to speak with David about how the pharmaceutical industry is looking to other industries for Supply Chain practices and philosophies… Fully outsourcing supply and manufacturing activities, as implied in the article, is not part of the AstraZeneca strategy.”

The company, however, stopped short of completely rebutting the comments. “However, AstraZeneca will use outsourcing where there is a sound business case,” the statement read. “For example, we are currently exploring the manufacture of Active Pharmaceutical Ingredients (APIs) — the basic chemicals used to formulate conventional medicines. The delivery of high quality medicines for patients remains the top priority for AstraZeneca and our Global Operations will continue to source activities in-house that are critical to keeping connected with the patient and essential to ensuring patient safety Supply and manufacturing will continue to play an important role in this through delivery of a robust end-to-end supply chain.”

Contract Pharma invited executives at AZ to elaborate on the statements published by The Times, and also to speak about its future outsourcing plans for the purposes of this article, but Joan E. Pitt, AZ’s director of communications, global operations, declined our invitation, deferring instead to the approved statement. Ms. Pitt offered one clarification though: “We currently outsource API production in Europe and India, and are currently looking at outsourcing intermediates from China. And, under the strategy we will continue to look at opportunities in both Europe and Asia,” she said.

Joanna Cosgrove is the online editor for Contract Pharma.