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Does Off-Shoring R&D Increase Risk?

Posted By Jeff Moad, July 23, 2013 at 11:58 AM, in Category: The Innovative Enterprise

Do manufacturers expose themselves to increased financial, legal, and regulatory risk when they elect to conduct product research and development activities in lower-cost developing countries?

This is a question pharmaceutical and other manufacturers are likely asking themselves in the wake of allegations that researchers at GlaxoSmithKline’s Shanghai R&D center engaged in unethical and possibly illegal practices in order to speed new products to market.

According to a 2011 audit, officials at the GSK R&D center in Shanghai failed to report the results of animal drug studies before beginning to test the drug on humans. The audit reportedly also alleges that officials at the center also failed to properly monitor clinical trials and paid hospitals in ways that could be interpreted as bribery.

Like many other pharmaceutical manufacturers, GSK a few years ago began to aggressively expand R&D activities in China where costs are lower than in many developed countries. Engaging in R&D in China is also seen as a way for drug companies to obtain regulatory approval for new drugs more quickly in that country.

GSK opened the Shanghai center in 2007, and the number of workers at the center rapidly grew to 460 by 2011.

The center is involved in the development of neurology drugs, including one closely-watched new product, ozanezumab, which is being developed to treat patients with multiple sclerosis and amyotrophic lateral sclerosis. Following the critical audit, GSK said it had terminated the trail on MS patients, but it is still studying the drug on patients with ALS (also known as Lou Gehrig’s disease.)

GSK officials have said subsequent audits show the company has addressed any problems at the Shanghai R&D center and that patient safety was never compromised.

Do manufacturers face inherently greater risk by conducting more R&D activities in developing countries? If so, how can manufacturers effectively manage that risk?

Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit


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