Last month, the drugmaker went out of its way to insist that production in China was just a gleam in its eye - and that making active pharmaceutical ingredients, or APIs, was only being explored. The explanation was a tortured bit of backpeddling, given that one of its top execs days earlier openly discussed outsourcing production to China. Then, it became known that AZ initiated a strategy to phase out internal manufacturing altogether; the drugmaker just didn’t want it widely known, given concerns over China’s reputation for poor quality and dangerous products.

Now, though, comes reality - AZ is outsourcing production of some of its bestselling meds to low-cost manufacturers in the Far East. As part of a restructuring drive designed to cut $900 million in costs by 2010, AZ will begin purchasing Lactam, a key chemical ingredient used to make Seroquel, its blockbuster schizophrenia drug, from contract manufacturers in China, The Times of London reports.

The decision forms part of a broader strategy gradually to outsource key manufacturing activities and focus on drug development and marketing, the Times continues, and Lactam is expected to be the first of many key ingredients for blockbuster drugs produced by contract manufacturers. Seroquel, by the way, had sales of $3.4 billion in 2006 and is AZ’s second top-selling product.

In the first stage, AZ is expected to stop production at plants in Macclesfield, Cheshire, and Plankstadt, Germany, and also trim other drugmaking operations in Sweden. The drugmaker operates 27 manufacturing sites in 19 countries but it is in the process of cutting 7,600 jobs, or 11 per cent of its 66,000-strong global workforce, including 700 jobs in Macclesfield.

Thousands more manufacturing jobs are likely to go over the next few years as a result of the changes. An AZ spokeswoman says the company is only in the “start-up phase” of sourcing Lactam from China. “There are still many steps involved, including internal assurance that standards are met, followed by submissions to appropriate regulatory agencies for approval,” she says.

To assist with the move towards more outsourced production, AZ has opened a new Chinese sourcing center near Shanghai to help it to identify low-cost producers and to manage the transition from in-house to outsourced production. It already operates another sourcing office in Bangalore, India. Contract manufacturers in both countries, as well as other regions such as Eastern Europe, are expected to play a growing role in the years ahead.

At present AstraZeneca purchases most of the basic raw materials and chemicals for drugs and then uses its own factories to conduct more advanced stages of API production, as well as the formulation of meds, preparation of pills, capsules and injectables and then final packaging and distribution. However, it is planning to gradually cease in-house production of API, the building blocks of conventional medicines. Ultimately, though, the drugmaker is looking to outsource other, more advanced manufacturing and logistics activities.

The transformation will take several years because of complex regulatory issues and the need to ensure quality control and complete reliability of supply. AZ will consider further outsourcing opportunities as they arise “where there is a sound business case,” The Times writes. Certain products such as Lactam are easier to outsource than others; more sophisticated drugs require 32 separate, individual chemical processes to manufacture.

Source: The Times of London