AstraZeneca has begun to outsource production of some of its bestselling medicines to low-cost manufacturers in the Far East.

As part of a restructuring drive designed to cut $900 million (£440 million) of the drugs group’s costs by 2010, the drugs giant is to begin purchasing Lactam, a key chemical ingredient used to make Seroquel, its blockbuster schizophrenia drug, from contract manufacturers in China.

Seroquel, which had sales of $3.4 billion in 2006, is AstraZeneca’s second top-selling product after Nexium, its $5.2 billion-selling stomach acid treatment. The decision forms part of a broader strategy gradually to outsource key manufacturing activities and focus on drug development and marketing. Lactam is expected to be the first of many key ingredients for blockbuster drugs produced by contract manufacturers.

In the first stage, AstraZeneca is expected to stop production at plants in Macclesfield, Cheshire, and Plankstadt, Germany, and also trim other drugmaking operations in Sweden.

Britain’s second-largest 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.

Plants in Bristol and Dunkirk, France, are likely to continue in the medium term but thousands more manufacturing jobs are likely to go over the next few years as a result of the changes. The shift towards outsourced manufacturing could prove controversial amid recent questions about quality control in China.

A spokeswoman said that the company was 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 said.

To assist with the move towards more outsourced production, AstraZeneca has opened a new Chinese sourcing centre 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 active pharmaceutical ingredient (API) production, as well as the formulation of medicines, 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 it 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.

The company said that it would consider further outsourcing opportunities as they arise “where there is a sound business case”. Certain products such as Lactam are easier to outsource than others. Some of AstraZeneca’s more sophisticated drugs require 32 separate, individual chemical processes to manufacture.

A number of other drugmakers, including Pfizer and Merck, of the United States, and Novartis, of Switzerland, are considering similar steps as they struggle to improve efficiency.

Pharmaceutical companies traditionally have been more conservative in their attitudes towards drug manufacturing and the supply chain than in other industries, but this is starting to change as they face increased cost pressures and competition from generic drugmakers.

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