A.T. Kearney
March 2006

For many years, pharmaceutical companies have been offshoring manufacturing operations to lower-cost countries. Only recently, however, have they begun to look at other locations for clinical trials. Our discussions with senior executives reveal an unsettling trend: Rather than systematically benchmarking cost, demographics, regulations and infrastructure, they often use incomplete, anecdotal information to determine offshore locations. It’s time for a new approach.

Healthy margins and strong risk aversion have afforded pharmaceutical companies the luxury of staying close to home, for all but manufacturing activities. As financial pressures increase, pharmaceutical executives are finding that going offshore is not only less risky than it once was, but also too attractive to ignore.

The offshoring potential is particularly significant for clinical trials, which account for as much as two-thirds of the cost of new drug development. Based on data from the FDA’s clinicaltrials.gov database (as of August 12, 2005), nearly half (48%) of all reported clinical trials conducted by pharmaceutical companies have a location outside the United States (see exhibit below).