Part 5: Domestic Pharmaceutical Manufacturing Special Focus: Outsourcing to the third world; it’s not so cheap anymore

1. Security Of The Pharmaceutical Supply Chain
A Series Of Informative Disquisitions
This Installment:
Part 5: Domestic Pharmaceutical Manufacturing
Special Focus: Outsourcing to the third world; it’s not so cheap
anymore

2. The
Pharmaceutical
Supply Chain

3. • Today, more than 85% of Active Pharmaceutical Ingredients are
manufactured overseas with a most coming from the third world
• Increasing globalization and supply chain complexity have posed
risks to pharmaceutical safety
• Materials are procured from multiple countries, manufactured in one,
potentially packaged in yet another country and distributed &
sold globally
Introduction
Pharmaceutical Industry Supply Chain

6. • BCG, the Boston consultancy:
• Average cost to manufacture goods in the U.S. is only 5% higher
than in China
• Average cost to manufacture goods in the U.S. is 10% to 20%
lower than in major European economies
• BCG projects by 2018 it will be 2% to 3% cheaper to manufacture
in the U.S. than in China
CNBC, February 27 2017
• Bloomberg, March 16 2016 - Labor costs adjusted for
productivity in China are only 4 percent cheaper than in the
U.S.
http://fortune.com/2015/06/26/fracking-manufacturing-costs/

7. Turns out that "made in China" is not so cheap anymore
Labor costs have risen rapidly
• Chinese factory workers are now getting paid more than
ever:
 Average hourly wages hit $3.60 last year
 An increase of 64 percent from 2011
CNBC, February 27 2017

9. • Rising labor costs in China have prompted many Pharmaceutical Companies
to look elsewhere to produce their APIs.
• The stage is set for many Pharma Companies producing overseas to return
to the U.S.
“Productivity has doubled in India and China, but the U.S. remains as much as 90%
more productive than the two developing countries”
CNNMoney, Hong Kong March 17, 2016
“The U.S. is benefiting from lower energy costs, a stable regulatory environment and a
huge domestic market”
CNNMoney, Hong Kong March 17, 2016

11. Power availability:
• Geography dependent, power may not be available 24/7
• Some industrial plants have power for only 8 hours/day
• Idle facilities and wasted capacity adds cost
Cost of power:
• Subsidies for farming result in industry paying an inordinate amount for power
• Electricity cost is often higher than in some developed countries
Cost of labor:
• Skilled labor has become costly
• Unskilled labor = risk
Hong Kong Trade Development Council (HKTDC) – July 2016

12. Cost of transportation:
• Poor roads & infrastructure
• Shipping delays
Bureaucracy:
• Political corruption
• Bureaucratic delays & inefficiencies
Hong Kong Trade Development Council (HKTDC) – July 2016

14. Quality control
• Easier to maintain quality by overseeing the process yourself, rather than outsourcing to a foreign
country
• Ease of meeting FDA & Pharma customer regulations and standards ($$$)
Financial considerations
• Rise in Chinese labor costs
• Shipping costs have jumped
• A reduction in domestic natural gas prices has kept electricity costs down
Economic boost
• Americans need jobs, so any time a company can keep them here rather than ship them overseas
is a win
• Those jobs help boost the overall economy, which improves business for everyone
https://www.impomag.com/article/2015/10/‘made-america’-primed-
comeback?cmpid=verticalcontent

15. The Boston Consulting Group: https://www.bcg.com/en-ru/d/press/10December2015-2015-manufacturing-survey-22903
• 31% of senior U.S.-based manufacturing executives said they companies are
most likely to add production capacity in the U.S. within five years
• Companies that are actively reshoring production increased by 9% since 2014
and by about 250% since 2012
• Companies that were considering reshoring in the past three years are now
taking action
A Revival of American Manufacturing is Underway.

16. • Factors such as logistics, inventory costs, ease of doing business, and the risks
of operating extended supply chains are all part of the considerations to bring
manufacturing back to the U.S.
• 76% claim that a primary reason for reshoring production of APIs was to
“shorten our supply chain”
• 70% cited reduced shipping costs
• 64% said “to be closer to customers
The Boston Consulting Group: https://www.bcg.com/en-ru/d/press/10December2015-2015-manufacturing-survey-22903

17. Supply Chain Security
And
Pharmaceutical
Manufacturing In
The United States of
America

18. • Ease of auditing
 FDA
 Sponsor
• Ensure legal compliance
 Local laws, etc.
• Protection of Intellectual Property
• Maintain confidentiality

19. • Secure transmission of certificates of analysis
• Responsible disposal of waste materials
• Secure warehousing and transport
• Environmental Responsibility
• Reduced language barrier
• Reduced time zone challenges
• Product traceability

20. • More consistent costs
• Currency fluctuations, etc.
• Elimination of importation problems
• Domestic Job Growth
• Good for the economy
• Diminished Price Advantage

21. Sourcing From The Third World Involves Risk To The Supply Chain
• Potential For Drug Shortages
• Can Result In Supply Discontinuation
• The Environment Is Actively Suffering
• Quality Problems (i.e. Out Of Spec Material)
• Communication Difficulties:
 Time Differences
 Language Barrier
• Contrasts In The Regulatory Environment

22. • Onshoring Of Manufacturing To The United States Is Already In
Progress
• Recent Government Mandates In China & India WILL Affect The
Supply Chain
• Cost/Price Is Approaching Parity With The United States
What IS The Risk In Saving A Few Dollars?

23. Stuart Silverman
CEO & Founder
RyMat Incorporated
(803) 397-8087
stu@rymatinc.com
RyMat Incorporated